Of Huge Defence Outlays

Whenever a country has to buy defence equipment, it has to incur huge expenditure that runs into billions. Naturally, such huge outlays result in some hardship to the people since the saving of such expenditure could have resulted at least in a marginal improvement in their quality of life. And yet, there are instances of costly defence equipment lying unused for years even up to a point where they have become outdated due to the development of more sophisticated equipment. In India, there are obvious reasons for ensuring almost total secrecy about major defence purchases. This is because one can generally expect big guns in the Defence Ministry to work actively towards diverting substantial portions of the outlay involved to private coffers. Even a cursory look at the huge budget earmarked for the Rafale fighter aircraft should give us a clear picture of the size of defence outlays. When the UPA government first struck a deal for 126 Rafale jets, the total value of the deal was Rs 79,200 crore and the unit cost was Rs 629 crore. The NDA government’s deal value for just 36 Rafale jets is Rs 58,000 crore, with the unit cost working out at Rs 1,611 crore or 2.56 times the unit cost of the earlier deal. What is strange, however, is that despite the size and cost of the deal, France has not issued any “sovereign guarantee” on the deal but only a “letter of comfort” to deal with any failure by Dassault or by its Indian offset partner Reliance to meet the terms of the Rafale deal. Most people in India have heard about a “letter of comfort” for the first time, and it is possible that even the Indian signatories to the Rafale deal had not heard the expression “letter of comfort” earlier. It is, therefore, natural that the nation should be worried about the extent of safeguards that France will take responsibility for in the event of the performance of the Rafale jets not matching their stated specifications. There seems to be a lack of clearly specified responsibility on the part Dassault for any failures in the performance of the Rafale jets. It is surprising that the deal should have been signed by the Indian signatories despite the lack of significant responsibilities on the part of France.

A sovereign guarantee is an assurance from a national government to another to discharge the liability of any company or person belonging to its country if it defaults on a contract or agreement. Considering the very substantial value of the Rafale deal, a sovereign guarantee from France should have been regarded as indispensible for the Rafale deal. The rational approach in respect of such huge deals is that no major deal should be executed in respect of defence equipment without a sovereign guarantee to back it up. Signatories to such deals should never be allowed to overlook the fact that they are executing a deal involving thousands of crores of rupees of public money and not their own money. The deals must, therefore, leave no scope for speculation about huge cuts and commissions being diverted to private coffers. A more acceptable style of functioning in a democracy would be to let the public know the unit cost of defence purchases but to keep their operational details and specifications well-guarded secrets. According to available reports, Dassault was very particular about keeping the unit cost of the Rafale jets secret. One obvious reason for this could be the huge cost escalation of 2.56 times between the deal with the UPA government and the latest deal. It is also possible that the Indian signatories to the deal must have been very anxious to keep the public in the dark about the unit cost of the Rafale jets considering that they had so readily agreed to a cost escalation of 2.56 times in a matter of just a few years. These are matters calling for detailed investigations.