Unresolved? 36 Rafales now cost 7.1 billion euros, 126 in 2012 cost 7.75 billion euros

By Mohan Guruswamy*
Rahul Gandhi tried to make the Rafale issue the sharp edge of the sword to politically slay Narendra Modi. He failed. But that does not absolve the Modi government from providing convincing answers as to why we are paying almost three times more for each Rafale than what was offered in 2014. People need an explanation. It is not a defence secret. It is an essential truth that is being sought.
The Indian Air Force was hoping for a minimum of 80 Dassault Rafale fighters, but the Modi government has kept the initial order down to 36 fighters in a fly away condition for 7.8 billion euros. Or $9.13 billion (@ 1 euro= $1.17). This gave rise to the calculation that we were buying the fighters for Rs.1600 crores each.
During the run-up to the deal, the then defence minister, Manohar Parrikar, muddied the waters a bit by making off the cuff comments about the high cost of the Rafale compared to the IAF’s mainstay, the SU-30 MKI. I don’t think there is any issue about the quality of the Rafale, unless Ram Jethmalani has a view on it, like he had on the Bofors FH-77 howitzer.
The public, quite rightly too, believes that all weapons purchases by the government involve murky transactions and huge pay-offs to figures in the government. This has been our well-beaten track record. The Modi government too is a government of politicians and many people believe that the main offset contractor, Anil Ambani’s Reliance Defence, suggests a deal is on.
Asked why Anil Ambani was chosen as the offsets partner for Rafale, an unnamed French official reportedly said: "Il fallait un homme qui puisse sussurer dans l'oreille du cheval." We needed a man (a jockey) who could whisper into the horse's ear."
This should lend further credence to that. According to Ministry of Company Affairs, Reliance Defence Limited was registered on March 28, 2015. On April 11, 2015 Reliance Defence Limited becomes the main partner in to ensure the 50 percent offset clause under which Dassault and other related French parties will invest half the contract value back in the country. Government officials insist that 74 percent of the offsets will be exported earning 3 billion euros for the country in the next seven years.

Incidentally Anil Ambani’s flagship company , Reliance Communications Ltd (stylized as RCom), just defaulted on a major foreign loan and its future ability to fulfill its Rafale offsets commitment should now be in doubt. The defaulted 2020 notes issued by RCom, once the country’s second-largest wireless operator, were trading at a record low of about 35.6 cents on the dollar in Hong Kong. The company’s shares slid 3.3% to an all-time low of Rs11.55. In the past year Anil Ambani's ADAG group has spectacularly imploded and he buys staving off bankruptcy.

There is much noise about the huge costs at which the 36 Rafale’s have been contracted for. The comparable costs of the 126 and 36 deals can only be read when all the costs are factored in. The cost of the new deal for 36 Rafale fighters is 3.42 billion euros as the cost of the bare planes; 1.8 billion euros for associated supplies for infrastructure and support; 1.7 billion euros for India-specific changes to the plane; and 353 million euros for “performance-based logistics support”; with the weapons package of 700 million euros being the extra.
What is new here are the performance based logistics support and the weapons package. So take out 1053 million euros out and you have the comparable cost, which means it is it is 7.1 billion euros. It appears that the fiddle is in the India specific costs, additional infrastructure and support, and performance logistics support. The first MMRCA deal also would have included India specific specifications, as is in the case of the IAF’s SU30MKI’s. Thus for comparison sake the argument can be made that 36 Rafales now cost 7.1 billion euros while 126 Rafales in 2012 cost 7.75 billion euros.
IAF "spokesmen" have been justifying the Rafale purchase because the package includes the Meteor air-to-air missile. The Meteor is the new game changer in the air. It increases the "no-escape" zone for a hostile aircraft by about three times. The Meteor is an active radar guided beyond-visual-range air-to-air missile (BVRAAM) developed by MBDA. It will offer a multi-shot capability against long range maneuvering targets in a heavy electronic countermeasures (ECM) environment with range in excess of 100 kilometers (62 miles).
According to the manufacturer, in a head-on engagement the Meteor provides a no-escape zone three times greater than that of a conventionally powered missile. With the Meteor launched in pursuit of a target—a tail-chase engagement—the Meteor is five times as lethal as a conventional equivalent such as the American AMRAAM. According to MBDA, Meteor has three to six times the kinematic performance of current air-air missiles of its type. The key to Meteor's performance is believed to be its throttleable ducted rocket (ramjet) manufactured by Bayern-Chemie of Germany.
Since the IAF cannot speak for itself, it deploys former IAF officials to speak for it. These “experts” have been deceptively disseminating the Meteor missile as the real reason for buying the Rafale’s. It was even said on a RSTV panel discussion in which I took part by an Air Vice Marshal who has found second wind as a strategic expert. The fact is that the Swedish Gripfen has now been integrated with the Meteor and open sources indicate that the IAF too is contemplating integrating the SU-30MKI and Meteor. Even the Tejas can be fitted out with Meteors. So we are not buying the Rafale for the Meteor.

Missile purchase can never be part of the capital cost of a fighter. Since they are expendable, they should be part of revenue expenditure

The cost of procuring Meteors is hard to come by. Limited figures came to light in Germany in 2013. The Luftwaffe will acquire 150 missiles at a cost of around $323 million, plus a further $175 million for integration. That compares favorably with a price tag of $423 million for 180 AIM-120Ds, which the Pentagon paid in 2012. Today each Meteor will cost about 2.5 million euros each. I don’t think the IAF will need more Meteor missiles than the USAF or Luftwaffe. But then there are other missiles to pay for too. Missile purchase can never be part of the capital cost of a fighter. Since they are expendable, and presumably mean to be expendable, they should be part of revenue expenditure.
Make no mistake. The Rafale is a top class 4+-generation fighter. Perhaps even the best. But we are concerned with prices and pay-offs. If this is a given we must be happy that we made a good purchase. We must also live with the nagging suspicion that money changed hands not just between the principals but to others less directly connected too.
---
*Well-known policy expert. Source: Author's Facebook timeline. Contact: mohanguru@gmail.com