The much-awaited report from Comptroller and Auditor General (CAG) was tabled by the government in the parliament on February 13, 2019. The CAG report that also talks about Rafale deal, has found that the deal signed by the current government led by Prime Minister Narendra Modi is 2.86% cheaper than what would have been signed by the then UPA government, if the deal had gone through.
Here are some insights from the CAG report.
Was Rafale deal under UPA legally tenable since offers submitted were not in compliance with the Request for Proposal (RFP)
The CAG report has said, “the offers submitted by M/s DA and M/s EADS were non-compliant to RFP and liable for rejection as non-responsive bids. It was specifically mentioned in the RFP that the submission of bids in incomplete format would render the offer liable for rejection. Ministry in its reply stated that the bids were compliant to the RFP. “
This shows that the very start of Rafale negotiations during UPA was on a shaky foundation. No wonder, that it never materialised into a deal during UPA times.
Benchmark price in original RFP was unrealistically low
CAG report observed that benchmark cost was 47% lower than the actual bid by the L1 vendor (lowest bidder).
CAG report said, “the benchmark price worked out by Ministry for the actual deliverables was 47 per cent below the actual prices offered by the L1 vendor, which shows that the benchmark price, once again, in this acquisition too, was fixed unrealistically”.
Thus, the price of Rs. 526 crores of Rafale aircraft that Rahul Gandhi keeps quoting to compare with price of Rafale aircraft under NDA government itself in some ways is an understated figure. It is because of this unrealistic pricing, as pointed out by CAG, that led to the deal not getting finalised during the UPA government.
Why UPA couldn’t sign the deal because it was unrealistic
This unrealistically low benchmark price caused two impediments during the Rafale negotiations by the UPA government.
- The man-hours required by HAL to manufacture in India were higher than Dassault’s expectations and this was a major showstopper.
- Dassault also refused to take guarantee for planes manufactured at HAL.
CAG report said, “Negotiations with M/s DA had reached a deadlock when the CNC realized that if the Indian man hours were applied to the cost of production quoted by M/s DA, the price of the aircraft would be substantially higher.”
Cost Negotiation Committee (CNC) recommended withdrawal of RFP
Thus, the CNC in 2015 recommended that the original RFP can be withdrawn as the two major problems of man power costs and non-guarantee of aircrafts to be manufactured in India couldn’t be resolved.
CAG Report said, “the committee recommended in March 2015 that the RFP for the procurement of MMRCA may be withdrawn. As a result, the procurement which started in 2000 had made no progress even after lapse of 15 years and, in fact, failed on the twin issues of manpower costs and non-guarantee for aircraft to be manufactured by M/s HAL.”
Read the highlighted part in the previous paragraph again which points to the fact that the UPA government during its 10 years of rule couldn’t conclude the procurement a process for which had started in 2000 itself. This had seriously compromised the national security of the country.
Price of Rafale aircraft is cheaper under NDA than under UPA
The price under the Inter-Governmental Agreement (IGA) signed by the NDA government led by Prime Minister Narendra Modi has turned out to be 2.86% cheaper than what the price could have been if the old contract was signed.
Here is the cost analysis as given by the CAG report.
Why the Rafale deal of NDA government is better than a non-deal of UPA government
- The price of overall deal under NDA government is lesser than what it would have been under UPA government if the contract was signed.
- India-specific enhancements came out to be 17.08% cheaper in the new deal.
- In IGA as signed by India and France, India gets the same benefits as the French government will get if it goes for a similar deal with the French vendor. The CAG report in this regard has highlighted, “the buying government receives the same benefits and protections as the vendor gives to its own government.”
Therefore, the CAG report has not found any wrongdoings on the part of the government, just as the Supreme Court had given a clean chit to the government. Not only has the CAG found the deal above board, it has even found the same to be cheaper than what would have been signed if the UPA deal had gone through.