In 2015, Indian Prime Minister Narendra Modi announced the historic defense agreement with French aviation company Dassault for the purchase of 36 Rafale fighter jets to renovate the rusty Indian Air Force.
At the end of July, Indian Minister of State for Defense Ajay Bhatt told media that the plane’s deliveries were on schedule, with 26 having so far arrived in India. The remaining jets are expected by the end of 2021.
However, the deal, worth 7.8 billion euros ($ 9.4 billion), was bogged down by allegations of corruption and cronyism.
On July 2, France opened a judicial investigation into allegations of corruption, according to the National Financial Prosecutor’s Office (PNF).
The investigation was triggered by a report from the French investigation site Mediapart, who claimed that “millions of euros in hidden commissions” were handed over to an intermediary who helped Dassault close the sale.
Some of the money may also have been paid in the form of bribes to Indian officials, according to the report.
Dassault said its audits revealed no financial malfeasance.
What is the Rafale agreement?
The Modi deal in 2015 came years after India’s United Progressive Alliance (UPA), led by the opposition Congress party, conducted negotiations with Dassault after the French company was chosen as the winner in 2012 Indian Multi-Role Fighting Aircraft Competition (MMRCA), which was intended to provide 126 aircraft to the Indian Army.
However, negotiations between the UPA and Dassault have stalled due to disagreements over 108 of the planes being produced in India by the state-owned Hindustan Aeronautics Limited (HAL).
Dassault had concerns over the transfer of technology to the Indian aerospace company, as well as doubts over HAL’s ability to produce the complex aircraft.
Modi’s new deal, worth € 7.8 billion, was somewhat surprising amid reports that the original deal was about to be finalized.
However, after a meeting in April 2015 between Modi and then French President François Hollande, it was announced that 36 Rafale jets would be delivered from France to India in flight condition. The MMRCA tender for the 126 jets was abandoned in July 2015.
After its finalization in 2016, Modi’s new fighter plane deal was touted as a major victory in cutting red tape by his party Bharatiya Janata (BJP), who took the opportunity to introduce the prime minister as a skilled negotiator.
Why is Modi’s Rafale deal controversial?
However, Modi’s political opponents in the Congress party quickly escalated their criticism of the BJP government, arguing that the plane purchase was the “biggest corruption scandal ever” in India.
Congress alleged that the BJP government was paying significantly more than the UPA government negotiated for the jets, and that the BJP favored private companies over public companies.
These accusations centered on Reliance Aerospace, a conglomerate run by Anil Ambani, a businessman close to Modi.
Reliance, which had no previous aviation experience, replaced HAL as the Indian partner in the deal. The company had been registered just 12 days before Modi announced the deal in April 2015.
A so-called compensation requirement, which was included in the deal to promote research and development in the Indian defense industry, raised eyebrows, as Reliance could have earned some of the money reinvested in India through to a joint partnership with Dassault.
The clearing obligations forced Dassault to reinvest 50% of the deal’s profits in the Indian defense sector.
In a joint statement in 2016, the companies said the joint venture would be a “key” element in fulfilling the clearing obligations.
Private profits vs. public
The involvement of the private company Reliance in the public company HAL, which had been selected as the “lead integrator” in the previous agreement, has been criticized by opposition parties.
Critics have accused Modi of crony capitalism and the government of favoring big business.
Amit Cowshish, a former acquisition financial advisor at the Department of Defense, told DW that HAL was chosen as the production partner to manufacture jets in India, while Reliance was chosen as the partner for the sole purpose of fulfilling the obligation of compensation.
Under Modi’s revamped deal, no planes would be manufactured in India, although Dassault would still have to meet its compensation obligations.
Congress has repeatedly called for the creation of a joint parliamentary committee to investigate allegations of fraud. However, the Indian Supreme Court ruled out investigating the allegations in 2018 and dismissed requests for reconsideration of its judgment in 2019.