Manohar Parrikar’s biggest contribution was to break the Rafale logjam. For six years, India had been unable to decide on how to buy the French-made combat jets because of the faulty procedure adopted by the MoD under the then Defence Minister A.K. Antony.
It is to Parrikar’s credit that he decided to think differently on a knotty issue and suggested a way out to the Prime Minister. In fact, in less than six months after taking over, Parrikar has studied various complex issues dogging the Defence Ministry and had come to his own conclusions on what needed to be done. By his own admission, Parrikar spent the first four months as Defence Minister in taking inputs from a range of experts both within and outside the MoD before making up his mind.
In his review, Parrikar also found that the bureaucracy in the ministry—both civil and military—was sitting on some 400-odd big and small projects that were critical to the three armed forces. Without getting into details, he said: ‘The first thing I did was to look at projects that are stuck at various stages of clearances, since the most common complaint across the board was “nothing moves” in the MoD.’ A thorough review revealed that nearly one-third of the 400-odd projects were now irrelevant. So they were discarded. About 50 projects were accelerated since they were of critical importance.
A decade-long impasse in defence acquisitions was broken with the decision on Rafale, raising renewed hope in the sector. Parrikar brought in a sense of purpose in the notoriously obdurate MoD bureaucracy. ‘There was no control over the system. There were no reviews, no feedback and there was no fear of punishment for non-performance. An important ministry like Defence cannot run like this,’ Parrikar had told me.
However, it was Parrikar’s sharp insights into finance and international systems that stood out when India—at his suggestion—decided to procure the Rafale combat jets from France. A detailed background is necessary here to understand the complexity of bogged down in procedures and flawed approach right from the beginning.
The competition to acquire 126 Medium Multi-Role Combat Aircraft (MMRCA) for the Indian Air Force began in 2007 after the government agreed with the IAF that it needed to replace the aging fleet of MiG aircraft.
Six companies across the world were issued the tender papers. They were: EADS from Germany, manufacturers of the Eurofighter Typhoon; Lockheed Martin, who make the F-16s; Boeing F-18 aircraft from the USA; Sweden’s SAAB, makers of Gripen; Dassualt Aviation (DA) from France, the Rafale manufacturers; and Russia’s Rosoboron Export, makers of MiG-35.
India was looking for 18 aircraft to be bought off the shelf and 108 were to be manufactured in India, with a local partner—in this case, it was supposed to be the state- owned Hindustan Aeronautics Limited (HAL). Required maintenance, repair and overhaul facilities were to be set up. The MMRCA contract was variously described as ‘mother of all deals’, ‘most complex defence contract’, etc., in the media reports. And it indeed was.
According to official documents that I have had a chance to read, the MoD had, in 2011, bench-marked the total cost of acquisition at Rs 163,403 crores. This, it must be pointed out, was different from the total cost of deliverables in the 126 MMRCA contract, which was bench-marked by the MoD at Rs 69,456 crores, excluding the offset loading cost, estimated to be anywhere between Rs 2,530 crores to Rs 5,060 crores.
All this came after the six companies submitted their techno-commercial bids in April 2008, followed by nearly 11 months of field evaluation trial (FET) held in the heat of the Rajasthan desert during peak summer months, and in extreme cold conditions in the high altitude zone of Ladakh. The trials were completed in May 2010. But it was not before July 2012 that the CNC activated four sub-committees: Maintenance, Offset, Transfer of Technology (ToT) and Contract sub-committees.
For the next two years, negotiations on ToT, Offset and Maintenance went on apace. However, certain aspects related to license manufacture of 108 aircraft in India with HAL as the lead production agency could not be finalised. Major differences occurred on the aspect of man hours that would be required to produce the aircraft from kits in India, and who would take the responsibility for the entire lot of 126 aircraft. While DA maintained that 31 million man hours that it had proposed should be sufficient to produce 108 Rafale aircraft in India, HAL was asking for a mark-up of these man hours by 2.7 times. This point became the bone of contention between the government and the French manufacturer.
Moreover, in the understanding of the MoD, the company that had emerged as the winner in the bid— Dassault Aviation—would have to sign a single contract with the Indian government. The French company would then need to have back-to-back contract(s) with HAL and other Indian production agencies. Dassault Aviation would also be responsible for the delivery of the entire fleet of 126 aircraft to IAF. The single point responsibility for this contract rested with Dassault Aviation because the RFP (Request for Proposal) was issued to them.
However, Dassault Aviation did not fulfil the commitment given in the first meeting and an impasse ensued on the responsibility of delivery of 108 aircraft to be manufactured in India. Another hurdle came up on the point of work share of HAL. Dassault Aviation was asked to submit a ‘responsibility matrix’, clearly defining the role and responsibility of Dassault Aviation and HAL. The matrix was to facilitate a back-to- back contract of Dassault Aviation with HAL. The CNC was, however, not able to move the negotiations forward since the interpretation of two fundamental aspects of the case by the French company was not in line with the terms of the original terms in the tender.
The first aspect related to treating Dassault Aviation as the ‘seller’ of 126 aircraft, including 108 to be manufactured in India and the corresponding contractual obligations and liabilities. The second point was about the man hours for the aircraft to be manufactured in India. The UPA government, under the overly cautious A.K. Antony, instead of imposing a deadline for the French manufacturer to comply with the terms of the RFP, dragged its feet and allowed Dassault Aviation to get away with obfuscation. Moreover, in an unusual move, Antony instructed MoD officials to bring the file back to him after concluding the CNC to re-examine the integrity of the process before proceeding to finalise the contract, creating confusion and doubt in the minds of the officials who were negotiating with the manufacturer.
Even as talks got deadlocked, the government changed in Delhi.
As the new political leadership was briefed about the impasse, MoD officials were told to try and break the deadlock as soon as possible, since the IAF’s fleet of fighter aircraft was depleting alarmingly.
On 10 November 2014, meanwhile, Parrikar took over as Defence Minister. While being briefed about the major pending projects and contracts, he realised that the MMRCA contract wasn’t going anywhere. He still wanted to give the French sufficient time to comply with the terms of the tender.
In December 2014, the French Defence Minister came visiting and as expected, raised the issue of conclusion of contract negotiations in the MMRCA case with Parrikar who told him that conclusion of the contract was held up on account of the vendor not confirming compliance to the terms of the RFP. This was followed up by a formal letter from Parrikar to the French Defence Minister stating that it would be really useful for Dassault Aviation to confirm compliance to the terms of the RFP and the terms of the bid submitted by them at the earliest. It was further mentioned in the letter that the negotiations could be carried forward and concluded thereafter if Dassault Aviation could be asked to depute a fully empowered representative to discuss non-stop with the CNC.
Another discussion with the delegation of Dassault Aviation was held on 12 February 2015. A clarification was sought from Dassault Aviation towards confirmation of compliance to the terms of the RFP and terms of the bid submitted by them specifically. The two crucial points, i.e. (i) the consolidated man hours based on which Dassault Aviation had been declared L–1 would be the same man hours required for license manufacture of 108 Rafale aircraft in India, and (ii) Dassault Aviation as the seller under the contract for 126 aircraft for the IAF would undertake necessary contractual obligations as per RFP requirements.
The representatives of Dassault Aviation reiterated their stand on both issues and stated that while Dassault Aviation would be responsible only for delivery of 18 aircraft in a flyaway condition, they would not take ownership for the 108 aircraft to be manufactured by HAL as the Local Production Agency (LPA). On the issue regarding man hours, the Dassault Aviation representative stated that the company’s stand had always been consistent that the man hours indicated in their proposal correspond to the related tasks performed in French industrial condition. He also mentioned that only HAL being the Lead Production Agency could talk about the factor of multiplication to be applied to these man hours to convert the same to the man hours required for license production of 108 aircraft in India. Clearly, Dassault Aviation was using the loophole in the original terms of the tender to get away with shirking its responsibility towards the quality of the 108 jets to be manufactured in India.
Exasperated at the obduracy shown by the French company, MoD issued an ultimatum on 20 March 2015 asking it to fulfill the commitment and confirmation on the two aspects mentioned above, ‘failing which MoD may be constrained to withdraw the RFP issued’.
However, Dassault Aviation, in its response dated 24 March 2015, did not commit on the two aspects mentioned above. Instead, the French company stated that the estimate of consolidated man hours given by them was to be used by HAL to prepare its own quotation with respect to the completion of its (HAL’s) tasks under the MMRCA. The MoD realised that applying a factor of 2.7 on the man hours quoted by both Dassault Aviation and EADS (the company that quoted the second lowest price), the Total Cost of Acquisition (TCA), as on November 2011, would undergo a material change to the extent that Dassault Aviation would have no longer remained L–1 vendor and would have become L–2 vendor.
As members of the cost negotiating committee on Rafale took the matter to Parrikar, he realised the process had been convoluted to such an extent that it would have been impossible to take it forward. He, however, knew from the briefings given by the IAF that there was no time to lose in acquiring fighter jets. The number of effective squadrons was going down rapidly. The IAF leadership also told him that they were happy with Rafale’s performance and would rather have the fighter in its fleet than scout for other options. Parrikar realised that another prolonged competition would have taken enormous time and effort. So he took the matter to the Prime Minister and briefed him about the necessity of procuring the fighter aircraft.
Under the circumstances, there was no alternative but to withdraw the original tender, Parrikar told Modi since the Central Vigilance Commission (CVC) guidelines provided that negotiations could not be held with the competitor who had come second in the competition (L–2 vendor in officialese). The only way, the Defence Minister suggested, was to scrap the tender and buy a minimum number of Rafale jets off the shelf to fill a critical gap in the IAF’s inventory. The Prime Minister agreed and decided to talk to the French President about such a possibility during his upcoming visit to Paris, in April 2015. The Cabinet Committee on Security also gave its approval to the new proposal before Modi left for Paris, on 9 April 2015.
Eventually, Prime Minister Modi announced in Paris that India would purchase 36 aircraft.