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French Rafale jets deal sparks political storm in India

Noah Seelam, AFP I Indian opposition supporters protest the Rafale fighter jets deal in Hyderabad Aug. 1, 2018.

A 2015 Indian deal to buy 36 French Rafale fighter jets has whipped up a political storm in India with the opposition claiming Prime Minister Narendra Modi’s “friends” – and not the country – is benefitting from a bad deal.

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Back in April 2015, when Narendra Modi announced India’s order of 36 French-made Rafale fighter jets on the first day of his first official visit to France, it was hailed as proof that the self-styled “man of action” prime minister could deliver.

Negotiations for the high-profile deal had dragged on for three years with deadlocks over the costs and subsidiary clauses frequently stalling the process. But when the French-Indian intergovernmental deal was finally struck, it was hailed by all parties with then French President François Hollande noting that it showed the partnership between India and France had “entered a new stage and our countries are united by the most beautiful kind of relationship, a relationship of trust".

But three years later, the Rafale deal has turned into a synonym for distrust in India between the opposition and the ruling BJP (Bharatiya Janata Party) amid allegations of collusion, lack of transparency and crony capitalism.

“The Rafale corruption scandal,” as it has been dubbed in the Indian press, has been making headlines since the leader of the opposition Congress party, Rahul Gandhi, brought up the issue during a July no-confidence motion against the government in parliament.

While the Modi government won the vote of confidence with a comfortable margin, it has not stopped the media storm, as the scandal has broadened to include accusations of “the misuse of the media” and legal notices to opposition politicians and a national daily to stop relaying “unverified, speculative” information.

At the heart of the Rafale scandal lies Indian billionaire businessman, Anil Ambani, a frequent presence on Forbes’ “richest” lists, whose family tops the 2017 list of Asia’s richest families.

In his scathing attack on what he calls the “biggest ever” corruption scandal, Gandhi has alleged that India is overpaying for the Rafale jets and that the Modi administration is “lying” about a non-disclosure pact between the French and Indian governments. What’s more, the Congress party leader asserts, the 2015 deal was hurriedly changed by Modi to benefit “his friend” the Mumbai-based billionaire businessman. “The fun part is that the contract was given to Ambani-ji, who has never made an aeroplane in his life nor has he ever taken a contract for defence,” said Gandhi, ironically adding the honorific “ji” suffix to the 59-year-old businessman’s name for added effect.

India’s largest defence contract stalls

The Rafale scandal dates back to 2007, when the Indian defence ministry floated its largest tender ever for 126 multi-role combat aircraft to replace its ageing fleet of mostly Russian-made fighter jets.

Five years later, the Congress-led government announced that the tender was won by Dassault, the makers of the Rafale, and that the agreement included the purchase of 18 Rafales in fly-away condition from the French company. The remaining 108 aircraft were to be assembled on Indian soil in partnership with the Indian government-owned HAL (Hindustan Aeronautics Limited).

At that time, the choice of HAL was hailed as a means for the Indian state-owned aerospace and defence company to acquire advanced manufacturing capabilities to produce and service state-of-the-art fighter aircraft.

But the deal stalled over the next three years over pricing and capacity issues. The original Rafale contract was worth $12 billion, but was widely estimated to have increased to $20 billion, primarily because of the implications of building some of the jets in India.

Offset, not make, in India

Shortly before Modi was set to arrive in France on April 9, 2015 though, Indian and French media reported that negotiations had picked up pace, with sources involved in the talks telling French daily Le Monde that “the idea is to announce the contract during Indian Prime Minister Narendra Modi’s visit to Paris”.

The visit -- which came barely a year after Modi was elected -- was billed as the new Indian prime minister’s bid to encourage French companies to participate in his nationalist “Make in India” by investing and forming manufacturing partnerships in civil nuclear energy, defence and food processing.

But the new Rafale deal – which media estimated was worth $8.7 billion (7.8 billion euro) -- only involved the purchase of 36 Rafale jets. What’s more, all the 36 aircraft would be manufactured in France and in fly-away condition.

The intergovernmental agreement however stipulated that Dassault would have to “offset” 50 percent of the deal in India.

Offset clauses stipulate conditions on suppliers to make them spend a portion of the contract in a certain way. In the Rafale case, Dassault had to ensure that 50 percent of the estimated $8.7 billion price it was earning would be invested in the Indian defence system.

Exit HAL, enter Ambani

For the Indian side, the state-owned HAL, with its 78-year experience in defence manufacturing, would have been Dassault’s ideal partner in meeting its offset obligations.

But not long after the agreement was struck, the Indian public was in for another surprise: Dassault had chosen to partner with Ambani’s Reliance group – despite the fact that the company has no experience in the aeronautics, let alone military aviation, sector.

As a businessman, Anil Ambani – the younger son of the group’s founder Dhirubhai Ambani – has a checkered record despite the vast fortunes of his family’s holding group, which was divided between the founder’s two sons. While his eldest brother, Mukesh, ranks first the Forbes list of India’s richest people, the younger Anil comes in at a relatively low 45th spot.

The younger Ambani’s recent economic woes include a telecom firm that was so severely hit by debt and interest payment defaults, it had to sell its wireless assets to a company run by his elder brother, Mukesh. A corruption case involving telecom licences finally ended last year with the judge deploring the weakness of the prosecution case presented by the CBI (Central Bureau of Investigation), the Indian equivalent of the FBI, but which does not share the US institution’s reputation for independence from the government in power.

Why Ambani?

While the 59-year-old billionaire businessman has had little success in the telecom sector and no experience in the aviation industry, he does have a special affinity for India’s Hindu nationalist prime minister.

The admiration, at times, has reached disconcerting levels, such as a 2016 “birthday message” by Ambani to Modi, which hailed the Indian prime minister as a “leader of leaders” and “king of kings” who “dreams with his eyes open”.

The choice of an Ambani company as a Dassault partner raised eyebrows in opposition circles. "Why would Dassault have chosen such a partner? According to what criteria? And if it wasn’t Dassault’s choice, who chose it?” said Gandhi in an interview with Le Monde this week.

The Indian defence ministry maintains that Dassault is free to work with any local company to complete its offset obligations, subject to approval by the government. While the French aviation giant declined to speak to Le Monde, an industry analyst noted that, "Even if it’s Dassault who provides the name, it’s hard to imagine how the Indian government does not provide its opinion given the political and economic dimension of such a contract."

A company is born days before an official visit

One of the most thorny issues has been the timing of the contractual dealings. Ambani’s Reliance Group incorporated a new defence company -- called Reliance Defence -- only 13 days before Modi announced the new Rafale deal.

Ambani was among the group of top Indian business executives who traveled with Modi to France.

Allegations of crony capitalism have dogged Modi since he came to power in 2014 and have increased as India heads for a critical 2019 general election. Private donations by wealthy individuals and companies have long financed Indian political parties, but the BJP has taken it to all new levels, according to figures released by the New Delhi-based Association for Democratic Reform.

The Reliance Group has denied all the allegations relating to the deal and has served legal notices to several Congress politicians and the Hindu media group asking to “cease and desist” from levelling “unverified, speculative, incorrect” statements “on such a sensitive subject relating to national security".

Secrecy rules

But perhaps the most stinging rebuke of the 2015 deal has come in the form of a detailed critique by two former BJP ministers and a leading political activist, which was published in the Indian news website, The Wire.

Calling the Rafale transaction “a case of criminal misconduct", the authors blasted the Modi government’s “gross misuse of friendly media to purvey falsehood, and to drown vital facts and questions in an avalanche of abuse".

It also highlighted yet another controversy surrounding the deal: the government’s persistent citing of “secrecy clauses in the contract that are just not there".

Earlier this year, the Indian Ministry of Defence issued a statement claiming that the details of the deal could not be revealed since the "exact cost of each component" of the Rafale deal could provide information of the various weapons systems and thus "compromise our national security".

Gandhi has been particularly vocal about what he calls the government’s “lying” about the so-called secrecy cause. “The Indian Minister of Defence [Nirmala Sitharaman] said that the price of the plane could not be revealed because it was part of a confidential clause,” Gandhi told Le Monde. “But I personally discussed [this] with [French] President Emmanuel Macron, who denied it. Why did the Indian Minister of Defence lie?"

The allegation was echoed by the authors of the detailed critique published in The Wire. “The secrecy clause in the agreement binds India to not disclose the technical specifications and operational capabilities of the aircraft. It does not bind India to keep the price secret. In fact, the French President Emmanuel Macron himself stated explicitly in March in an interview to 'India Today' that how much is to be disclosed in this regard is entirely up to the Indian government.

With a critical general election coming up next year, the fracas around the Rafale deal is not about to subside. In the late 1980s, corruption allegations over an India-Sweden defence deal, buffed “the Bofors scandal” led to the election defeat of a Congress government led by Gandhi’s father, Rajiv Gandhi. History, the opposition may be hoping, could just repeat itself – except this time, with the tables turned.

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