Motilal Oswal
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Motilal Oswal

CNBC-TV18's Shereen Bhan deciphers CAG report on Rafale jet deal

Updated : February 14, 2019 05:59 PM IST

The Comptroller and Auditor General (CAG) has submitted its much-anticipated report on the Rafale fighter jet deal on the last day of the final session of Parliament.

CNBC-TV18's Shereen Bhan decipher CAG's 141-page report on Rafale jet deal in this show.

The national auditor has concluded that the Narendra Modi government's deal is 2.86 percent cheaper than the deal signed by the previous UPA government in 2007.

However, the auditor also admitted that comparison of prices posed "difficulties" and the report has redacted portions referring to the specific break-up of the costs.

"This comparison of prices under 2007 and 2015 offers has posed its own difficulties because the package offered in 2007 included the price of license production of 108 aircraft in India, while the 2015 offer included only direct flyaway aircraft, which was compared to costs of 18 flyaway aircraft. The difference in volumes may itself affect costs," the report said.

Further, union defence minister Nirmala Sitharaman had claimed on the floor of the Parliament that the base price of the aircraft under the 2015 deal is nine percent cheaper than the previous deal. But, the CAG report has refuted this saying that the price of the basic flyaway aircraft in the current deal versus 2007 is the same.

The CAG report also noted that the 2007 deal entailed a 15 percent bank guarantee from Dassault Aviation against advance payments by the government. But, the 2015 deal had no bank guarantee and the French provided only a letter of comfort and this was done despite the advice from the union law ministry seeking a sovereign guarantee.

As per the CAG report, "Since about 60 percent of advance payments were to be made to the French vendors, the ministry of law and justice advised that government/sovereign guarantee should be requested in view of the value of the proposed procurement. However, the government of France and vendor neither agreed to furnish the bank guarantees nor government/sovereign guarantee. Instead, it provided a 'letter of comfort' signed by the French Prime Minister in lieu of the bank guarantee."

Another key reason the government cited for reducing the number of fighter jets from 126 in the 2007 deal to 36 in the new deal was to address the "urgent needs of the Indian Air Force". But, according to the CAG, the schedule for delivery of Rafale jet under the new deal has improved by a mere one month. 71 months under the 2015 deal and 72 months under the 2007 deal. The report also notes that the Indian negotiating team expressed apprehension even about this delivery schedule.

The report concludes that the lack of bank guarantee meant "savings" for the vendor at the expense of the Indian exchequer.
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