Rafale jets 2.86% cheaper, CAG raises larger questions

AUDIT REPORT UPA’s deal had guarantees that NDA one doesn’t; govt, Cong both claim victory

NEW DELHI: The Narendra Modi government’s stand that it acquired Rafale fighter jets at a lower price than that negotiated by the previous United Progressive Alliance was vindicated by the Comptroller and Auditor General (CAG), which said the jets cost 2.86% less under the new deal, while pointing out critical deficiencies in the defence procurement procedure in India.

The government auditor’s report on this purchase and several others by the Indian Air Force (IAF) was tabled in Parliament on the last working day of the 16th Lok Sabha on Wednesday.

The CAG audit report should bring some relief to the government, which has been under fire from the Congress and other opposition parties that have alleged that: due process wasn’t followed; the old deal was cheaper; and the deal was changed to enrich Reliance Defence, which subsequently struck an offsets partnership with Dassault Aviation, the maker of Rafale.

The new deal has also been criticised for not having the safeguard of financial and performance guarantees — which the old one did.

Referring to the report, Union minister Arun Jaitley said it was a victory of the truth. “‘Satyameva Jayate’ – the truth shall prevail. The CAG Report on

Rafale reaffirms the dictum,” Jaitley tweeted.

“The lies of ‘Mahajhootbandhan’ stand exposed by the CAG Report,” he added.

The report does highlight some of these issues, including the fact that the older deal incorporated the cost of bank and performance guarantees on 25% of the deal value. The new deal doesn’t have any of those guarantees. That’s a saving, CAG said, but for Dassault, which

hasn’t passed it on to the Indian government. Typically, such guarantees involve setting aside some money (in this case 25% of the deal value), for which there is a cost — 1.25% according to Dassault and 0.34% according to India. To understand the math, this means 1.25% of 25% of the deal value (or $3.125 million in a $1 billion deal, say) is the cost of the guarantee.

The government has consistently claimed that the price of the basic aircraft under the new deal is 9% cheaper than in the old deal. CAG says this number isn’t