What is the Rafale aircraft?

Rafales are twin-engine Medium Multi-Role Combat Aircraft (MMRCA) manufactured by Dassault Aviation, a French firm. 

Who took the decision to buy Rafale aircraft?

Though the idea of buying new aircraft has been around since 2001, the actual process began in 2007. The Defence Acquisition Council, headed by then Defence Minister A.K. Antony, approved the Request For Proposal to buy 126 aircraft in August 2007 which kick-started the bidding process.

There were many options and all aircraft were tested by the IAF and after careful analysis of the bids, two of them — Eurofighter and Rafale — were shortlisted. Dassault bagged the contract to provide 126 fighter jets, as it was the lowest bidder and the aircraft was said to be easy to maintain.

In January 2012, when Rafale was declared the winner, its price was quoted between $60-65 million (Rs373-Rs400 crore). A top defense ministry official said the price of a fighter jet made by Dassault could now cost $120 million (Rs746 crore). The second bidder, Eurofighter, had quoted $80-85 million (Rs497-Rs528 crore)

Source: DNA

Initial Deal and the cost

Rafale was chosen as the lowest bidder based on life-cycle cost, which is a combination of cost of acquisition, operating cost over a duration of 40 years and cost of transfer of technology. The total cost was $20bn. The plan included acquiring 126 aircraft, 18 of them in fly-away condition and the rest to be made in India at the Hindustan Aeronautics facility under transfer of technology. 

Source: TOI Report Feb 1, 2012

The negotiations with Dassault dragged on over disagreements on warranty for aircraft produced by HAL. India wanted Dassault to ensure the quality of aircraft produced by HAL, but Dassault refused to do so and wanted a separate contract for 18 and 108 aircraft as reported by India Today in April 2013. The report also talks about the poor track record of HAL.

As per an IAF official "in 2007 when the tender was floated, the cost of the programme was $12 billion (Rs42,000 crore). When the lowest bidder was declared in January 2012, the cost of the deal shot up to $18 billion (Rs90,000 crore)".  In January 2014, it was reported the cost of the deal had escalated to $30 billion, with each aircraft costing $120 million.

Source: DNA Report

Current Deal and cost

As disagreements over cost and warranty for aircraft produced by HAL continued, defense minister Manohar Parrikar said that Sukhoi Su-30MKI could be acquired as an alternative to Rafale as reported by Business Standard on Jan 13, 2015

Air Chief Marshal Arup Raha didn't agree with Defense Minister saying that Su-30MKI and Rafale had different capabilities and one could not replace the other as reported by Economic Times on March 30, 2015.

During an official visit to France in April 2015, prime minister Narendra Modi announced that India would acquire 36 fully built Rafales citing "critical operational necessity". Mr. Modi made the announcement at a joint press conference with French President Francois Hollande after their summit talks at Elysee Palace. Source

“Keeping in mind the critical operational necessity of fighter jets in India, I have talked to him [Hollande] and requested for 36 Rafale jets in flyaway condition as quickly as possible under a government-to-government deal,”

In July 2015, defense minister Manohar Parrikar informed the Rajya Sabha that the tender for 126 aircraft had been withdrawn and negotiations for 36 aircraft had begun.

In January 2016, India and France signed a memorandum of understanding for the acquisition of 36 aircraft. In September 2016, India and France signed an inter-governmental agreement (IGA) for the acquisition of 36 aircraft at a cost of €7.87 billion as reported by The Hindu.

Reliance vs HAL

As per TOI report dated Feb 13, 2012, Reliance Industries and Dassault Aviation had signed a pact for partnering in the defense and homeland security sector. According to deal, Dassault Aviation, the French manufacturer of Rafale fighter jets, had planned to invest over Rs 1 lakh crore in offset obligations as reported by Economic Times.

As per 2012 deal, Dassault was free to choose its private sector partners, provided the main production line was set up with state-owned Hindustan Aeronautics Ltd. 

Fallout With HAL

As per initial deal in 2012, 108 aircraft had to be manufactured by HAL under transfer of Technology. This part of the deal was agreed by all the parties involved. Additionally, India wanted Dassault to ensure the quality of aircraft produced by HAL, but Dassault was not ready for it.

Why Dassault was not ready to take warranty?

As per NDTV report from Feb 2015, 

Dassault Aviation, the French manufacturer, has concerns about the carbon-fiber composite material that would be used by HAL to form the skin of the Rafale fighter.  Though HAL prides itself in having mastered the use of these composites (which are also used on the indigenous Tejas fighter plane), HAL uses a manual technique.  Dassault, on the other hand, uses an automated and much quicker process to manufacture super-critical carbon-fiber composite structures such as the wings of the Rafale.

The Rafale's primary sensor, the RBE-2 Airborne Electronically Scanned Array, is manufactured in state-of-the-art laboratories in France to exceptionally rigid production and quality standards.  HAL's avionics labs, which presently work on radars for the Air Force's Sukhoi 30 have different standards and technologies in place.  French sources say HAL engineers will need a change in the work culture and the avionics labs in Bangalore will need upgrading to meet the French standards. This is, again, not seen as a deal breaker, but the French have flagged a concern that the modernization of HAL's technology could be a time-consuming process.

French negotiators have indicated that that while they are obliged to train Indian engineers on the assembly of key components of the Rafale fighter, they need specific assurances to ensure that the engineers they train remain deployed and committed to the manufacture of the Rafale, again, to ensure that the jets are manufactured and delivered on time to the Indian Air Force.

What do offsets obligations mean in the deal?

As pointed out earlier offset was there in the deal by UPA government as well. Offset means Dassault has to invest 50% of the deal value in India. The offsets roadmap worked out with Dassault included a plan to set up a center for composites manufacturing, transfer of hi-tech knowhow and a joint venture for the Falcon business jets programme, besides larger plans to invest in Smart Cities in the future. 

The MOU was signed between Reliance Industries and Dassault Aviation for this offset partnership. But the MOU was allowed to lapse in 2014. 

Difference between the deals by UPA and NDA

While UPA had awarded the deal to the lowest bidder Dassault Aviation, NDA had signed a government to government deal with the French government.

How government to government deal is possible with a private company Dassault?

French state-owned Aerospatiale has a 46% stake in the Dassault aviation and that's why a government to government deal was possible. Source

Current Deal and offsets obligations

The current deal is worth € 7.87 billion (over 9 billion US dollar with the current value of the dollar) and half of this amount which is close to € 4 billion will be invested in India by Dassault Aviation. As per the deal, all the aircraft will be manufactured in France.

Dassault has finalized agreements with 72 different companies to supply various products and services. One company among those 72 is Dassault Reliance Aerospace. The list of Indian Offset Partners of Dassault includes other Indian business groups like L&T, Mahindra Group, Kalyani Group, Godrej & Boyce, Tata group etc. As per the offset clause, Dassault is free to select partners as per its need. And it is not necessary that the offset partners will have to work on the Rafale project only, they can work on any project by Dassault.

Read this article from Live Fist Defence to understand Dassault Aviation's plan in full detail.

EXCLUSIVE: 1st Full Details Of Rafale’s €4-billion Make-in-India & Offsets Plan

This clarifies that the claim that Dassault is going to invest 4.5 billion US dollar (approx 30,000 crores INR) in Reliance is completely false and baseless because this amount will be invested in 72 different shortlisted companies including Snecma HAL Aerospace Ltd which is a joint venture between Hindustan Aeronautics Ltd (HAL) and Snecma (Safran) of France. This joint venture will make parts for Rafale jet’s Snecma M88 engine. Therefore, the allegation that HAL has been completely left out is false. As the jets will be made in France, only some parts of that will be made in India as per offset obligation, and HAL is already a part of that.

Now the biggest question had Modi government taken away the contract to make Rafale in India from HAL and given it to Reliance?

We have already mentioned that as a part of the deal, all aircraft will be manufactured in France and due to offsets obligations, Dassault will invest € 4 billion in India. Having said that some parts of the Rafale will be manufactured in India and HAL is already part of it. Since none of the aircraft will be manufactured in India, the allegation that Modi government has betrayed PSU HAL to award the contract to a private company owned by Anil Ambani is completely false and baseless.