Why in news?

The report of the Comptroller and Auditor-General of India on acquisition of 36 Rafale fighter jets from France was recently tabled in Parliament.

What is the deal on?

• Rafale is a twin-engine Medium Multi Role Combat Aircraft (MMRCA).
• Tenders for 126 MMRCA fighters were issued by India in 2007.
• It was an open competition between companies, including Dassault Aviation of France.
• Dassault was announced as the lowest bidder in 2012.
• But on Indian PM's visit to France in 2015, India’s intention to buy 36 Rafale aircraft in “fly-away” condition was announced.
• The Defence Minister announced the previous 126 fighter jet deal to be dead.

What is the audit report on?

• The CAG report has examined the €7.87-bn deal for 36 Rafale aircraft signed between India and France in 2016.
• The purpose is to assess if the objectives of Indo-French joint statement and the objectives set out for INT (Indian Negotiating Team) by DAC (Defence Acquisition Council) were achieved in the deal.
• The CAG had to compare the latest deal for 36 Rafale with the price bid by Dassault for 126 Rafale jets in 2007.
• It did this by converting the earlier deal into an equivalent cost for 36 aircraft in 2016.
• The question of 50% offsets in the deal, which has been at the centre of a major controversy, has not been dealt by the CAG.
• It will form part of a separate report by the CAG on offsets in all the deals.

What are the report highlights?

• The CAG report concludes that the 2016 agreement is slightly better in terms of both pricing and delivery than the 2007 deal.
• Price comparison - The 2016 deal through IGA (Inter-Governmental Agreement) is 2.86% cheaper than the earlier UPA (United Progressive Alliance) regime deal.
• On the Rafale’s India Specific Enhancements (ISE), which cost more than €1.3 billion of the €7.87 billion deal, the CAG stated that there was a saving of 17.08%.
• Delivery schedule - There was an improvement of one month in the 2016 contract (71 instead of 72 months for the earlier bid).
• Absence of bank guarantee - The 2007 offer from Dassault had costs of bank guarantee embedded in its offer.
• But there is no such guarantee in the 2016 contract which is a “saving” for Dassault.
• This sum should have been passed on to the Indian government, the audit observed.
• 126 to 36 - By reducing aircrafts to be bought from 126 to 36, there is a wide gap in the operational preparedness of the IAF.
• But the CAG could not find any proposal with the Defence Ministry for filling this gap.
• Ministry of Defence had reportedly informed CAG that it had issued a fresh Request For Information (RFI) for new fighter aircraft to fill this gap.
• Government claims - One of the government's claims was that each basic aircraft (without enhancements) was 9% cheaper in the 2016 deal.
• But the audit concluded that there was no difference between the 2007 and the 2016 offer in this regard.

What are the concerns?

• The report comes amidst varied revelations about possible lapses and deviations in the Rafale deal.
• But the audit report is less likely to bring closure to the controversy over the deal as it does not clarify all the doubts about the deal.
• The original issue of bringing down the total acquisition from 126 to 36 aircraft was not given much attention.
• The CAG's assessment of savings in India Specific Enhancements (ISE) to be around 17% is also not properly documented and needs deeper examinations.
• The report, in all, stresses on the fact that the defence acquisition processes in India require reforms and streamlining.