NDA's Rafale deal is 2.8 per cent cheaper than UPA's: CAG

New Delhi: The Comptroller and Auditor-General said Wednesday in a much-anticipated report that the $8.7 billion deal signed by Narendra Modi government with France to buy 36 Rafale fighter jets from Dassault Aviation was 2.86 per cent cheaper than what had been negotiated by the previous UPA government in 2007. However, it outlined various measures which would have made the deal even further cheaper.

The CAG report on “Capital Acquisition in the Indian Air Force” tabled in Parliament said that most of these savings were only because the Indian Air Force changed the missile system in 2015 from what it wanted in 2007. This saved 17 per cent in the India-specific enhancement  cost of the Rafale jets. However, there was scope to save even more under the India-specific enhancements (to make the fighters compatible with special requirements of the Indian Air Force) because the Indian negotiation team had proposed to postpone six enhancements for future aircraft, which were shot down by the defence ministry. The CAG said four of these enhancements were “not required in the technical and staff evaluations” and constituted 14 per cent of the India-specific enhancement cost. Also, the weapons package offered in the new deal was 1.05 per cent cheaper.

Without disclosing the pricing details in absolute terms, the CAG found overall that the price of seven items were higher than the UPA one, three were the same and four were lower.

The price of the basic aircraft was the same during the NDA and UPA eras, the CAG said. It did not agree with the defence ministry’s argument that the basic aircraft cost was nine per cent cheaper than the price offered for the aircraft in 2007.

The areas where the price overshot than that negotiated under the UPA was the engineering support package and the performance-based logistics for the IAF, where the price was higher by 6.54 per cent. The training costs also shot up by 2.68 per cent over the 2007 offer.

The CAG found removal of financial and performance guarantees in the 2015 agreements resulted in savings to Dassault, which should have been passed on to the Indian government. In the 2007 offer, Dassault provided financial and performance guarantees, the cost of which was embedded in the offer price, the CAG said. But these were removed in the agreement signed by the NDA because it was a government-to-government deal.

The CAG underlined that the NDA government agreed with the refusal of the French side to provide a “sovereign guarantee” and instead accepted a “Letter of Comfort”. The French also did not agree to the Indian government’s request for opening of an escrow account to manage payments to Dassault as a safeguard measure.

The CAG said the only concession which the Indian government got was “that the advance payments were to be made directly to the bank accounts of Dassault that were opened in a French government-controlled bank, over which the French party was to exercise control and monitoring for effective implementation of the inter-government agreement and the supply protocols”. In case of any breach of agreement, the Indian government would have to first settle it through arbitration directly with Dassault. If the arbitration award were in favour of the Indian party and Dassault failed to honour the award, the Indian party should exhaust all available legal remedies. Only then would the French government make these payments on behalf of Dassault, said the CAG. The
report was, however, silent on the issue of offset partners, a key point on which the Congress has been attacking the Narendra Modi-led government, and has been alleging corruption over Anil Ambani’s Reliance Group getting one of the offset contracts.

The CAG said the “unsolicited” proposal of a 20 per cent discount by aerospace major EADS on the Eurofighter Typhoon jet, a competitor of Dassault Aviation, had some “factual inaccuracies”.