July 25, 2021

Rafale’s Ghost


IN Shakespeare’s famous play Macbeth, the feudal lord kills his friend Banquo to eliminate a possible rival, then kills the king and takes the throne. Troubled by his guilty conscience, Macbeth sees Banquo’s ghost which appears repeatedly to haunt him in public. Like Banquo’s ghost, the Rafale scandal reappeared this week to haunt the BJP government.

The financial crimes branch of the French public prosecution service, PNF, launched a formal criminal inquiry on June 14, 2021 into various allegations of corruption, money laundering, favouritism, influence peddling and undue tax waivers in the notorious Euro 7.8 billion inter-governmental deal under which Dassault Aviation is supplying 36 fully armed, combat-ready Rafale fighter aircraft to India. The deal announced suddenly by Indian Prime Minister Narendra Modi in France sparked a huge controversy in India because it summarily overrode the prevailing agreement under the Defence Procurement Procedure (DPP) to acquire 126 Rafale jets with 108 to be made in India by Hindustan Aeronautics Ltd (HAL), Bangalore, under transfer of technology from Dassault, and also suddenly introducing into the deal an offsets partnership with the Anil Ambani-led Reliance Aerospace which had no prior experience in aeronautics, was financially stressed and had no infrastructure for such a project.    

News of the decision to launch the probe was broken on July 2, 2021 by the French news website Mediapart which has published a series of articles over the past two years based on its own extensive investigations into various behind-the-scenes aspects of the deal. A sitting judge has been designated for the inquiry, set up on the basis of a complaint by the French NGO Sherpa, which focuses on financial wrongdoings in governance, citing these Mediapart reports especially revelations in recent reports.

Mediapart had reported in 2019 that the former head of the PNF, Eliane Houlette, had dismissed an earlier complaint by Sherpa, without conducting any preliminary investigations and ignoring the recommendations of members of her staff, saying she was doing so in order to “preserve the interests of France.” Funnily enough, “national security interests” were also repeatedly cited by the BJP government in India, including in the Supreme Court, in denying demands to share information on the deal especially with reference to price, other contractual details, due process under the DPP, and details of the 50 per cent offsets under the deal. Confidentiality clauses in the agreement, which also dropped anti-corruption clauses, also helped.

In France, though, the successor head of the PNF, Jean-Francois Bohnert, has now reversed that decision and opened the probe with potentially explosive findings. The inquiry is slated to examine, among other aspects, actions of former French president Francois Hollande, under whose term in office the Rafale deal with India was signed, and also actions of the current president Emmanuel Macron, now leading a new Party but who was economy and finance minister in the Hollande government, and the current foreign minister, Jean-Yves LeDrian who was then the defence minister.

The allegations would be mostly familiar to readers in India since these have been reported widely, including in these columns, based on evidence from many diverse sources including the Mediapart investigations. The recent reports by Mediapart in April and July this year have, however, advanced some new evidence including some hitherto undisclosed documents which Mediapart has in its possession.

A number of the allegations revolve around the sudden announcement of the offsets agreement between Dassault and Reliance Aerospace, particularly since the latter was a novice in aviation manufacturing and given the perceived proximity of promoter Anil Ambani to the ruling dispensation in India.

PM Modi announced the new deal on April 10, 2015 during his visit to Paris. In India, it became clear that the announcement came as a total surprise to the defence minister, the foreign minister, HAL and even the air force chief, to whom the sudden reduction of the IAF’s requirement from 126 to 36 must have come as a rude shock. Customary briefings before the PM’s departure for France referred to the likely closure of the deal involving HAL.  As late as March 25, 2015 during the Aero India air show in Bangalore, Dassault CEO Eric Trappier had stated, in the presence of the HAL chairman and the IAF chief, that all aspects of the arrangements between Dassault and HAL had been ironed out, clearly contradicting the false narrative subsequently and continually put out by the BJP government that the “emergency” government-to-government deal was struck because the procurement under the DPP had collapsed due to irreconcilable differences between Dassault and HAL.

A major outcome of the new deal was the unexpected entry of Reliance Aerospace, which formed a joint venture with Dassault, the Dassault Reliance Aerospace Ltd (DRAL), in November 2016 within two months of the signing of the inter-government deal in September. However, as subsequent revelations were to bring out, Reliance had entered the picture much earlier including as evidenced by Anil Ambani’s “coincidental” appearance in Paris and at other events involving Dassault.

However, in its recent report, Mediapart claims to possess documents to show that Dassault and Reliance had in fact signed a Memorandum of Understanding (MoU) outlining mutual responsibilities of a collaborative agreement on March 26, 2015 itself, two weeks before PM Modi’s announcement of the new deal in Paris. This clearly showed that Dassault and Reliance Aerospace had prior knowledge of the forthcoming deal removing HAL and bringing in the Ambani company instead.

The Mediapart report also reproduces extracts from documents purportedly showing that the shareholders’ agreement of November 2016 between Dassault and Reliance Aerospace did not contain financial details which were, instead, shown in a “side letter” also signed on the same date. Mediapart claims that besides the sum of Euro 10 million pledged by both companies, Dassault also provided additional funds of Euro 43 million against the shares and a loan “not exceeding Euro 106 million.” Thus, according to Mediapart, Dassault had pledged up to Euro 159 million or 94 per cent out of the total investment of Euro 169 million. Mediapart therefore claims that Dassault was enabling Reliance to become a major beneficiary in the joint venture, confirming the favouritism involved as confirmed by subsequent developments, including a video recording with then President Hollande stating that France had been obliged to accept Reliance as a partner at the instance of the Indian government.

Mediapart also reports that Dassault had agreed to pay an unnamed Indian middle-man Euro 1 million following the finalisation of the deal, as revealed during an audit by the French anti-corruption authorities Agence Francaise Anti-corruption.

Hopefully, the judicial investigations in France would reveal many truths so assiduously hidden from the public both in France and India. Here, BJP spokespersons and supporters have been pooh-poohing Mediapart’s revelations, and claiming that this is a purely French affair of no concern to India! They are forgetting that it takes two hands to clap!


Apart from these arbitrary decisions and possibly underhand dealings, it is important to underscore the serious implications for Indian defence and self-reliance that the Rafale affair has exposed.

Much has happened in India since 2015-16 when all these shenanigans, of dropping HAL and bringing in Reliance Aerospace, were playing out. At that time, the government was going headlong to marginalise Indian PSUs and the Defence Research & Development Organisation (DRDO) group of laboratories, hitherto the backbone of defence manufacturing and research in India, and to push the introduction of private Indian companies into defence manufacturing. Government was so convinced in its ideology that it even invited foreign defence majors to invest in India even with majority holdings in the fond hope that this would bring in advanced technologies and build capacities of Indian companies slowly entering the defence space in India.

Subsequent developments have shown clearly shown that this ideology and resultant policies are dead in the water. Bar a very few exceptions that one could count on the fingers of one hand, the much vaunted scheme of “strategic partnerships” involving foreign defence majors and Indian private sector partners have gone nowhere. The government has been forced to include defence PSUs in the category of Indian “strategic partners” albeit reluctantly. This has been due to both the lack of capability among Indian private players and the reluctance of foreign defence majors to transfer advanced technologies.

In the Rafale deal itself, Reliance Aerospace is very much a junior partner performing subcontracted work making components and sub-assemblies for civilian Dassault Falcon jets unrelated to the Rafale or to defence manufacturing. The fate of other elements of the required 50 per cent offsets are also still not known and, as per revised DPP provisions which allows the foreign supplier full freedom of choice, that too well after closure of the contract period which allows no bargaining power for India, Dassault and its French partners are free to choose their offset works and partners in India which may yield few if any significant benefits for the defence manufacturing ecosystem in the country.

While the government is persisting in its efforts to trim defence PSUs and DRDO so as to promote private companies in defence, there are indications of some return to an appreciation of their role, particularly by the armed forces, who have been emphasizing the benefits of an indigenous defence manufacturing base.

The arbitrary and capricious decision by the government, at the highest level, to cut the IAF’s requirement for 126 multi-role fighters, articulated after years of rigorous study, to a mere 36 Rafales has been cruelly exposed by the growing vulnerability of the IAF and India’s defence preparedness. Soon after the Rafale deal was signed, India was forced to re-issue another pre-tender for 114 fighters. Ironically, this would involve more or less the same contenders and further delays even while the IAF’s fleet continues to shrink and degrade to dangerous levels. And will the new agreement for 114 fighters actually result in technology transfer and build indigenous capabilities?

There has been much debate recently among military and strategic experts about a perceived reluctance of the IAF regarding the proposals, supported by the chief of defence staff, for multi-service integrated theatre and functional commands. The reluctance of the IAF can be directly ascribed to its dearth of assets. Theatre commands would require more or less permanent placement of assets under geographically separated theatres. The IAF now has only one full and one partial squadron of Rafales at the Ambala and Hashimara bases, and other assets are rapidly degrading with age and wear. IAF clearly therefore cannot spare assets to be placed in bits and pieces here and there, and is therefore resisting the very idea of theatre commands.

The Rafale decision of the BJP government has been a disastrous decision in more ways than one.