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Does The CAG Report Show That Modi’s Ministers Lied About Rafale?

A comparison of what the ministers have asserted in the past and what the CAG report says. 

In relation to the cost of the Rafale deal, there are glaring inconsistencies between the claims made by the Modi government’s ministers in the past and the report of the Comptroller Auditor General (CAG) on the Rafale deal that was tabled in the Parliament on Wednesday, February 13.

Here is a comparison of what the ministers have asserted in the past and what the CAG report says.

Defence Minister Nirmala Sitharaman had reportedly said in the Lok Sabha on January 4, 2019 that the NDA government paid 9 per cent less per Rafale jet than what had been negotiated by the previous UPA government.  The same was reasserted by Union Minister Ravi Shankar Prasad on February 10, “Modi government’s price is 9 per cent cheaper than UPA’s and with all weapons loaded, it is 20 per cent less,” he had reportedly said. 

What the CAG Report says:The Ministry in its  response (January 2019) has accepted that the Aligned price worked out by INT and Audit in case of basic aircraft were the same but argued that the negotiated/contracted price of 36 flyaway aircraft was 9 per cent lesser than the price offered for the aircraft in 2007. This was because the L1 subcommittee of 126 MMRCA had estimated the average cost of each flyaway aircraft till its median delivery as “DL1”€ . Ministry has stated that “had the bid been finalized and the contract signed in the MMRCA case in 2011, this would have been the fixed price of the aircraft”. Against this, each aircraft was constructed in 2016 (under 36 Rafale contracts) for “DL2”M€  which was a savings of 9 per cent .

The bid price offered by M/s DA (Dassault Aviation) in 2007 for the flyaway aircraft was “DL3”M€. Para 42(a) of the RFP required the Vendors to provide firm and fixed prices. Further para 14(g) of part I of RFP specified that for product supports an indices based formula was to be provided valid for 40 years with an annual cap.  L1 subcommittee in its report stated (Para 2.1) M/s DA had offered costs with a base price of June 2007 subject to escalation. The L1 subcommittee used actual values available till June/July 2011 and used provisional values till September/October 2011.  Beyond this, till the mid delivery period the committee used and annualised year on year escalation rate based on the historical data. This was done as the actual escalation factors were not available with the L1 subcommittee for the period 2012 to the mid delivery period. In 2015 , the INT and Audit had the actual escalation factors and the 2007 offer of “DL3” M€ was escalated to “DL2” M€. Therefore there is no difference between the bid of 2007 as escalated by INT with actual escalation factors, and the negotiated cost of the 2015 offer for the same aircraft.“[Page 136, para 2.2 (ix)]

Union Minister Arun Jaitley had claimed a that the NDA’s 20% cheaper Rafale aircraft in Modi-Ambani deal based on escalation and inflation factor. “The 2016 price is 20% cheaper than the 2007 offer. So we got it cheaper,” he had told ANI.

What the CAG Report says:Ministry in its response (January 2019) had repeatedly stated that initially in the RFP of 2007 M/s DA (Dassault Aviation) was required to submit the price offer on Firm and Fixed (F&F) basis. As seen earlier, this was interpreted by the CNC/L-1 subcommittee as quoted price escalated as per the formula to the mid delivery period. In 2015 also, M/s DA was asked firm and fixed price. This time it offered a cost of “AX13” million euro.  The INT was informed by the French side that it had arrived at the price of “AX 13” million euros by applying indices based escalation formula from base of June 2007 till may 2015, and there after escalating till the mean delivery period at the annual rate of 3.9 per cent.

Since the F&F cost of “AX13” million euros was too high, Ministry invited the bid at non-firm and fixed prices. This time M/s DA offered a price of “T” million euros which was finally negotiated to “U” million euros. The escalation on the price was to be based on French rates of inflation subject to a cap of 3.5 % per annum , Ministry has stated that it has obtain the commercial advantage of between AX 14 million euros as the recent inflation rate in France has been 1.22 per cent  .

Any savings which accrues would be due to the difference between the escalation cap and actual escalation rates, between the year 2016 and 2021. These would have also been available in the 2007 commercial offer depending upon escalation rates but after the mid delivery period , as calculated by the CNC/L1 subcommittee in 2011-12.” [Page 140-141, para 2.6]

Arun Jaitley had also reportedly claimed that that the Modi government’s Rafale deal was more advanced than the being considered under the UPA government.

What the CAG Report says: “Following important points were agreed to in the joint statement (between India and France)

  • The 36 Rafale Jet would be acquired as quickly as possible
  • An IGA would be signed for the supply of the aircraft on terms that would be better than conveyed by M/s Dassault Aviation as part of separate process underway
  • The delivery would be in time frame that would be compatible with the operational requirement of IAF
  • Aircraft along with weapon and associated system should be delivered in the same configuration as had been tested and approved by IAF and with a longer maintenance responsibility by France

The better terms were related to ‘Price’, ‘Delivery’, and ‘Maintenance’, as decided by the DAC and its meetings of 28.08.2015 and 01 .09 .2015. The IGA was to be signed after negotiating the price and other terms and conditions. To negotiate with representative of French government along with M/s Dassault Aviation, Ministry of Defence constituted an Indian Negotiation Team on 12th May 2015 with the approval of Raksha Mantri.” [Page 126, para 1 (a)]

Also Read: Rafale: Modi’s Deal Cost India At Least INR 27317700000 (Two Thousand Seven Hundred Thirty One Crore) More Compared To UPA’s

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