Wednesday, September 5, 2012


The Rafael Deal-Detail lies in hidden costs

Author:  Abhijit Iyer-Mitra
Rafale may have won the contest for the supply of Medium Multi-Role Combat Aircraft to India, but there's a strong possibility that we will end up paying far, far more than the bid amount. It appears that Rafale had quoted an unrealistically low amount to win the contract
After Rafale won India’s Multi-Role Fighter aircraft contest in February this year and the deadline given to its manufactures Dassault to submit the final documents expired last week, one would think that having no international orders since its first flight 21 years back, Dassault would have bent over backwards and produced the required documentation in time. But nothing was submitted. Behind this simple lapse lies a very complex story — one that should make every Indian taxpayer pay much more attention to how the Defence Ministry spends its money.
The Rafale story has just one ending: India will not receive even half the technology that was promised by Dassault in the company’s “100 per cent” claim, and the cost of the plane is likely to escalate by well over 100 per cent, by conservative estimates.
The Defence Ministry’s think-tank, the Institute for Defence Studies and Analyses, was the first to defend the missed deadline — variously claiming mischief, pointing to interested parties, and then going on to assert that no matter what the delays or cost, Rafale’s induction was a national priority. It gave a whole host of bogus reasons and cyclic logic that only a Government servant could think up. Ultimately this is the same line used to defend the disastrous NREGA scheme where ‘need’ trumps demonstrated failure.
There is a very sound logic to the delay. Having underpriced the Rafale in the initial bidding, France has no option but to look for ways of cost escalation in order to make a profit. This is exactly what happened with the Scorpene submarines and the Russian Gorshkov carrier, which were offered at ludicrously low prices, precisely to pre-empt the competition, and since then have seen anywhere between 200 and 2000 per cent escalation. One would reckon that with a 2000 per cent budgetary overshoot at the Defence Ministry, some babu’s heads would roll or at the very least some lessons would have been learnt? Evidently not. At some point, some one really needs to have a long hard look at whether the IAS officers— like all products of standards tests, truly are as monumentally incompetent as their actions reveal or if, in fact, this is graft masquerading around as ineptitude and shielded by a lack of accountability.
While the IDSA was busy defending the deal, a little known French publication was spilling the beans, pretty much predicting the course of the entire Rafale procurement. L’usine nouvelle reported that Dassault was now convinced that India did not have the technological expertise to indigenise the Rafale’s production and well over 50 per cent of the production would remain in France — including the all-important Active Electronically Scanned Array radar. Evidently in the five years that the Medium Multi-Role Combat Airraft competition dragged on, France did not see this deficiency — promising us a full 100 per cent technology transfer. Even at that time the high foreign content of the Rafale was deliberately concealed, especially the seven per cent of it which comes under the US International Traffic in Arms Regulations controls, which means India, will not even be allowed to open the boxes in which those components are housed. Now, within six months of winning the contract based on such promises they have already determined that India cannot cope with such advanced 21-year-old technology.
Hindustan Aeronautics Limited and Defence Research and Development Organisation are typical socialist enterprises — not required to perform, they merely provide useless employment for the uselessly educated. Since there are no guidelines or timeframes for research translating into tangible products, they are yet to produce a single operational weapons system. Their research and development being done without competent market research, much of their attention is diverted to answering questions no one asked.
The deciding factor that won the Rafale the competition was its lower cost. Even a cursory glance at the Rafale’s costing for the French Senate done in 2009 indicated a unit price 2.25 times of what the French quoted us, not factoring in inflation. Now given that all this knowledge was public, when quality control is highly suspect, when your grocer sells you ‘premium basmati’ at 1/3rd the market price, it takes a real specimen to not step back and ask, “Why”? Even after costing the country a full 2000 per cent in hidden costs over the Gorshkov, evidently South Block mandarins do not involve themselves in such trivial details so long as they get their D1 flats, Gymkhana memberships and chauffeur-driven cars. Honestly living that life you could be excused for thinking public money grows on trees.
What can one expect from here? Four things:
First, Dassault’s final submission will take much longer to materialise — possibly another year or so.
Second, a stream of news reports that we’ve already heard a thousand times before will come out telling us how unprepared our institutions are to receive this technology.
Third, when that document from Dassault does indeed materialise, expect a minimum 170 per cent jump in costs attributed to “time delay”, “unforeseen problems” and “supply chain variables”. Let’s not forget that, when this competition started out in 2007 the deal was meant to cost us $10.6 billion. Now the figure has already doubled to $20 billion, while any intelligent person who bothered studying the publicly available costs would have fixed the price at $27 billion as far back as 2009.
Finally, India will not achieve self-sufficiency in combat aviation any time this century — after all, if standardised tests produce bureaucrats this daft, HAL and DRDO’s similarly standardised test scientists can hardly be expected to be much better? 
At some point, one needs to introspect very deeply. This is a complex societal matrix of woe combining a broken education system, a complete lack of governance, a total lack of accountability, institutional collapse, a worrying lack of innovation, introspection and self-correction all leading up to near total intellectual ossification. And you think simplistic solutions like the Lokpal would work?

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