Modi Govt waived anti-corruption clauses in Rafale deal

Modi Govt waived anti-corruption clauses in Rafale deal


The €7.87-billion Rafale deal between India and France, that is turning to be a nemesis for the Narendra Modi Government, was stitched up dropping critical provisions for anti-corruption penalties and making payments through an escrow account, and also making major and unprecedented concessions from the part of the India Government.

All talk about Modi's being a votary of fighting corruption appears to have been thrown to the winds, going by the latest expose of ‘The Hindu’ on Monday.

The “parallel negotiations” conducted by the Prime Minister’s Office and the National Security Adviser have not found a place in the material submitted by the Government to the Supreme Court.

According to the expose, the high-level political intervention meant that standard Defence Procurement Procedure (DPP) clauses on “Penalty for use of Undue Influence, Agents/Agency Commission, and Access to Company accounts” of Dassault Aviation and MBDA France were dropped by the Indian government in the supply protocols. Under the terms of the agreement signed between India and France in Delhi on September 23, 2016, Dassault is the supplier of the Rafale aircraft package while MBDA France is the supplier of the weapons package to the Indian Air Force.
The Defence Acquisition Council (DAC) chaired by the then Defence Minister, Manohar Parrikar, met in September 2016, and “ratified and approved” eight changes in the IGA, supply protocols, offset contracts and offset schedules. This was after the IGA and associated documents had been approved by the Cabinet Committee on Security (CCS) chaired by Prime Minister Modi on August 24, 2016.

These eight changes were recorded in a note signed by Vice-Admiral Ajit Kumar, member-secretary of the DAC. The most significant of them is: “Non-inclusion of the Standard DPP Clauses related to ‘Penalty for Undue Influence’, ‘Agents/Agency Commission’ and ‘Access to Company Accounts’ in the Supply Protocols.”

These clauses were dropped by the Indian Government from the supply protocols which were to be executed by Dassault and MBDA, the two private companies.
This issue of direct dealing with the commercial suppliers was highlighted in a detailed note of dissent signed by three members of the Indian Negotiating Team — MP Singh, Adviser (Cost), A.R. Sule, Financial Manager (Air), and Rajeev Verma, Joint Secretary and Acquisitions Manager (Air). They had taken a strong stand and noted: “Notwithstanding the fact that the procurement is on Government-to-Government basis, the IGA involves ‘Transfer of Rights and Obligations’ relating to supplies of equipment and related industrial services by French Government to the French Industrial Suppliers, and the payment is also being made to the French Industrial Suppliers and not to the French Government; therefore, it is not advisable to sacrifice the basic requirement of financial prudence.”

Despite the standard procedure stating that the standard contract document “would be the guideline for all acquisitions”, the Indian government chose to remove the clauses from the supply protocols with the two private defence suppliers. Through this, the Government also chose to do away with a sovereign or bank guarantee from France and settled for a letter of comfort, though not legally binding, from the French Prime Minister.

The letter was after another last-minute intervention by the Indian Government in September, when the Cabinet Committee on Security chaired by the Prime Minister issued a corrigendum to the note forwarded by the Defence Ministry for the CCS, doing away with the requirement for an escrow account operated by the French Government to make payments to the two companies.

Financial Adviser Sudhansu Mohanty in his note says: “In the absence of a sovereign/bank guarantee, in a case like this where an IGA is to be signed, it would be prudent to involve the French Govt. as far as releases are concerned. This possibly could be done through an Escrow account or a variant of the same where the money released by the buyer (Govt. of India) is paid to the Escrow account held under the charge of French Govt. to make further payments to the firm as per terms & conditions agreed to by the Indian and French Govt. through IGA.”.

This note came after the PMO and Doval chose to waive the sovereign or bank guarantee from France.

Parrikar, who was initially non-committal, shifted stance later in 2016 to actively push for the changes, giving financial experts little time to study the proposals.
He chaired the meeting of the Defence Acquisition Council that “ratified and approved” the eight changes, including the decision to drop the provision of penalties for corruption in the supply protocols with the private companies. He also directed the issue of a proposal that led to doing away with the provision for an escrow account as a financial safeguard, the expose says.