What makes Modi's Rafale deal so controversial?

Prime Minister Narendra Modi is implicated in a snowballing scandal related to the procurement of 36 Rafale fighter jets from France. Former French President Francois Hollande revealed in an interview released on September 21, 2018, that France did not have any other choice except for one company recommended by New Delhi for the deal. Owned by Anil Ambani, Reliance Aerostructure Limited – with no experience in aerospace manufacturing – became French aviation company Dassault Rafale's partner in India. 

On Friday, Hollande, who was responsible for clearing the deal between the governments during his tenure, was quoted as stating that New Delhi had pressured Dassault to choose Reliance. Anil Ambani is the son of the late Dhirubhai Ambani, one of India’s most powerful and richest business moguls.

Hollande stated, “We did not have a say in this. The Indian government proposed this group, and Dassault [the company that manufactured the jets] negotiated with Ambani. We did not have a choice, we took the interlocutor who was given to us.” 

Investigative journalists Karl Laske and Anton Rouget reported that Ambani’s Reliance Defence provided funding for a film produced by President Hollande’s partner, actress Julie Gayet. Ambani funded Gayet's film when the deal for 36 fighter jets with Reliance was completed. 

While Reliance appeared in the film’s credits, it was not mentioned in financing details presented to France’s public body responsible for cinema. The film did not mention India, or distribute in it. Former President Hollande is likely speaking now given the focus on his partner’s film relative to the deal. In an attempt to deny this, he has declared the Reliance Defence was picked because France was given no choice by the Indian government. “I could not even imagine that there was any connection to a film by Julie Gayet,” he stated.

The focus of the scandal rests on Prime Minister Modi’s sudden decision to secretly end a previous deal that sought 18 fighter jets from France and largely focused on training the local workforce through the transfer of technology. Instead of relying on foreign imports, the previous government led by the Congress party aimed at manufacturing 108 aircrafts in India. But Modi single-handedly changed the terms of the deal and agreed to procure 36 fighter jets. 

Rahul Gandhi, Indian Congress president, has lashed out, calling it the "biggest ever" corruption scandal, accusing Prime Minister Modi of changing the deal to benefit “his friend” Anil Ambani. He declared, “The fun part is that the contract was given to Ambaniji, who has never made an aeroplane in his life nor has he ever taken a contract for defence.”

India’s defense procurement rules mandate that foreign firms must invest at least 30 percent of contracts in India to build local technological capacity.

Former ministers Arun Shourie and Yashwant Sinha have also criticised the deal, noting “Neither Reliance Defence nor any of its allied companies have any experience of manufacturing aerospace and defence equipment.” The original fighter jet deal was supposed to include Hindustan Aeronautics Limited (HAL), which activist lawyer Prashant Bushan noted “has over 60 years of experience in aircraft manufacturing ....”

Bushan contrasts this to Reliance Defence, which he said is “a private party which has had absolutely no experience in manufacturing aerospace and defence equipment has been handed an enormous financial benefit.”

To add to the controversy, critics point to the fact that Anil Ambani’s Reliance Group incorporated a defence company just 12 days before Modi announced the new Rafale deal. Ambani also accompanied Modi on his visit to France, resulting in accusations of a breach of confidence and cronyism. Reliance Defence’s responses to the allegations have neglected to mention ties between Modi and Ambani. Ambani had previously publicly called Modi "king of kings."

"The PM personally negotiated and changed the Rafale deal behind closed doors. Thanks to François Hollande, we now know he personally delivered a deal worth billions of dollars to ... Anil Ambani," said Rahul Gandhi, president of opposition Congress party. “The prime minister has betrayed India,” he concluded.

The breach of confidence allegations take on new strength in light of the highly secretive conditions of the changed deal, with  former defence minister Manohar Parrikar being informed about the deal only shortly before Modi left Paris to make the announcement. Even India’s foreign secretary was not informed about the deal. To add more confusion, Dassault CEO Eric Trappier recently made a public statement saying that the original 126-aircraft deal was “95 percent complete.”

Anand Sharma, the opposition leader from the Congress party demanded that the prime minister respond to the charges made against him. At a news conference he said, “My direct charge is that the prime minister violated the oath of confidentiality. Only he could have told Anil Ambani that HAL [Hindustan Aerospace Limited] will be out and he will strike a deal to buy 36 jets, and ‘you’ [Ambani] go and talk to Dassault aviation [Rafale Jet Manufacturers].”

While the most cited reason for the deal change is the “collapse of negotiations,” no response has been given on the illegality of Modi’s individual decision to change the deal without gaining approval of relevant cabinet committees, or undermining fellow ministers of Defence and Finance. 

The Indian Congress President Rahul Gandhi had previously accused the government of significant inconsistencies after the deal was announced, given that the finalised price from the initial deal went from $72.3 million (526 crore) to $2.3 billion (Rs 1670 crore), nearly triple the price.

Additionally, the National Anti-Corruption Bureau of Ukraine had launched investigations into another deal for the purchase of spares for military transport aircrafts, with personal kickbacks worth $2.6 million (RS 17.55 crore) to Ministry of Defence Officials in the Modi government. The government did not to respond or provide details on the deal.

Indian Defence Minister Nirmala Sitharaman has hit back, stating that she did not even know who Dassault’s partner was, calling it “a commercial decision,” while procedure calls for partnership clearance in 2019. This is suspect however, given that Dassault and Reliance have publicly declared in joint-press releases that they were working together, with the foundation stone for their joint-manufacturing facility laid as early as October 2017 with Indian ministers in attendance.

Modi and his government did not respond to request for comment, and have yet to officially respond to the growing scandal.