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CAG Report Says NDA's Rafale Deal 2.86% Cheaper Than UPA's, But Raises Red Flags

The CAG notes that the deal signed under the NDA waived off bank guarantee allowing Dassault to make a savings of an unspecified amount in ‘bank charges’.

Arunima, Ashish MehrishiArunima24

Updated:February 13, 2019, 9:16 PM IST
CAG Report Says NDA's Rafale Deal 2.86% Cheaper Than UPA's, But Raises Red Flags
Illustration by Mir Suhail/News18.com

New Delhi: The Rafale deal negotiated by the Narendra Modi-led NDA government was 2.86% cheaper than the one negotiated by the UPA regime in 2007, the much-awaited CAG report on the defence deal with France said.

The report, which was tabled in Parliament on Wednesday, says the new deal for 36 fighter jets saves up on India-specific enhancements and weapons package, and would be delivered faster than the time decided upon in 2007.

But a closer look at the 141-page report raises several questions and actually contradicts some claims made by Defence Minister Nirmala Sitharaman on pricing of Rafale jets.

CAG Contradicts Defence Ministry on Aircraft Cost

The government had in January said that the new negotiated price is 9% cheaper than the one chalked out by the UPA in 2007. “Your basic price and the basic price that I am getting at, when compared with all the escalation and other things, is 9% cheaper,” PTI quoted Sitharaman as telling reporters in September last year.

The CAG report, however, says there is no difference between the two bids when actual escalation factors are considered.

The report says that any savings due to the difference in adjusted inflation rates, part of the 2015 deal, would have been part of the 2007 offer as well.

Safety Net, Part of UPA Offer, Missing in NDA Deal

The CAG notes that the deal signed under the NDA waived off bank guarantee allowing Dassault to make a savings of an unspecified amount in ‘bank charges’.

The total savings, the report says, “accruing to the vendor [Dassault] should have been passed on to the ministry” which was not the case. Instead, it states, “This was actually a saving for Dassault Aviation when compared to its previous offer of 2007.”

Overruling Law Ministry’s advice on seeking sovereign guarantee, the PM-led Cabinet Committee on Security accepted a ‘Letter of Comfort’ from the French government.

A bank guarantee is automatically invoked in case of breach of contract, but with the new deal providing for no such safety-net, India would have to sit for direct arbitration and legal resolution with Dassault.

This, the report notes, is in stark contrast to the 2007 offer “which had included 15% bank guarantee against advance payments, 5% each for performance guarantee and warranty.”

Unnecessary Add-Ons

According to the report, the new contract is 17.08% cheaper than the previous one in terms of India-specific add-ons to the fighter jets. These enhancements, however, would have been further cheaper had the government adhered to the Indian Air Force’s advice.

The IAF, it says, had objected to four of the 13 enhancements proposed in the deal, making up 14% of the total cost of the enhancements.

The defence ministry, however, went ahead with all 13 add-ons, saying it did not consider bargaining with Dassault Aviation over the India-specific enhancements as it amounted to a temporary cost-cutting measure.

“Scaling down the requirement to limit cash outgo cannot be considered as saving,” the CAG report quoted the ministry as saying.

Delivery Schedule Under Question

According to the CAG report, the new deal advances the delivery schedule by just one month. This is in contradiction to the “urgency” of the acquisition cited by the government in scaling down the contract from 126 to 36 fighter jets and removing the technology transfer clause.

“… the delivery schedule finally offered by the French side was 18 aircraft by 36 to 53 months after the signing of IGA (Inter-governmental agreement), and the remaining 18 aircraft to be delivered by 67 months of signing of IGA,” the CAG said in the report.

The report further points out that as against the delivery period of 72 months in the earlier offer, the contracted delivery schedule for 36 Rafale aircraft was actually 71 months, thus resulting in a benefit of just one month.

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