Red flags in CAG report, even though Rafale deal was cheaper than UPA’s

New Delhi: The much-awaited CAG report is a mixed bag for the BJP government. So, even as it says the 2016 contract signed by the Modi government for 36 Rafale aircraft was 2.86% cheaper than the contracted price in 2007 by the UPA Government, it debunks the government claim that the price was 9% lower. (The report does not include the controversial and sticking point of pricing, as the Defence Ministry maintained that these details could not be revealed.)

Even the government’s claim of faster delivery of the fighter jets in the 2016 contract has been refuted by the CAG, which has pointed out that there is “no big difference in the delivery schedules.” Under the UPA deal, the first 18 flyaway jets were to be delivered in the 50th month from the date of contract, while in the 2016 deal, Dassault is required to supply the first aircraft by the end of 53rd month.

The government had justified paying more for the reworked deal because of India specific enhancements, but the CAG report points out that though these were certainly 17.08% cheaper, but that did not help since four of these enhancements were “not needed” by the Indian Air Force. It also objected to spending more on engineering support package — to the extent of 6.54%.

The report also points out that Dassault Aviation had provided performance and financial guarantees in 2007 amounting to 25% of the total contract value, but there is no such guarantee or warranty in the 2016 contract. “This led to a saving for Dassault that was not passed on to the Indian government.”

It also endorses the Opposition’s charge that the 2016 contract does not provide any transfer of technology, as was agreed in 2007, when the knowhow was to be transferred to the public sector Hindustan Aeronautics Limited. The CAG report has also decried the government signing the deal on “non-firm and fixed price” which is vulnerable to price escalation depending upon the price index.

Red flags in CAG report, even though Rafale deal was cheaper than UPA’s

The ministry had claimed it would be cheaper than the “firm and fixed bid” since the escalation in price is based on the French rate of inflation, subject to a cap of 3.5% per annum. Responding to this audit observation, the Congress party said: “The justification of conversion from ‘Firm and Fixed Price’ to ‘Escalation Cost’ by the Modi Government only helps Dassault Aviation garner millions of Euros, thereby causing a loss to the Indian public exchequer.”

The CAG has also objected to the government agreeing on increasing the cost of training of pilots and technicians by 2.68%. Going into specifics, the report says there is also zero price difference in the case of simulator and annual maintenance, as also in the role equipment.

One positive is that the Rafale contract consisted of a total of 11 packages, three of which were bought by the Modi government at lower price, including the weapons package that cost 1.05% less. Analysing the CAG report, Congress chief spokesman Randeep Singh Surjewala said PM Modi, Finance Minister Arun Jaitley and Defence Minister Nirmala Sitharaman claimed in Parliament that the NDA purchase was 9 to 20% cheaper, but the “eyewash” report says it is only 2.86% cheaper. “Even the ‘manufactured figure’ of 2.86% cheaper is horribly fake and false,” he said.

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