CAG report on Rafale deal: The difficulty in comparing prices under Modi govt and the UPA

The Comptroller and Auditor General (CAG) in its report tabled in Parliament today said there were many challenges in comparing the prices of the 2007 bid under the UPA with that of 2015 under the Modi government. The main reason behind the difficulty was the different quantity and packages agreed between the French and the Indian sides.

Under the Congress government there were two separate packages that had to be compared to one package under the Modi government. The two packages under the UPA were for 18 flyaway aircraft brought directly from France, and the other for 108 aircraft to be produced in India. Under the Modi government the offer was only for 36 flyaway fighter aircraft brought directly from France.

"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 costs of 18 flyaway aircraft," the CAG said in its report.

But, finally the pricing was compared of 36 flyaway fighter jets with the lot of 18 under the UPA keeping various technical factors in mind. The CAG stayed away from disclosing the pricing details but said the Modi government had bought the fighter jets cheaper by 2.86 per cent.

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"For comparing the prices of June 2007 bid with the bid of May 2015 first the scope of both the offers had to be brought at par. The INT (Indian Negotiating Team) had also to ensure that the 36 aircraft along with weapons and associated systems would be delivered in the same configuration as tested and approved by the IAF in 2007," the CAG said in its report.

Also, a price escalation formula, which used the industrial cost indices published by the French National Institute of Statistics and Economic Studies (INSEE), was applied to compare the bids of 2007 and 2015.

There was another critical factor. The CAG report said that the pricing in 2007 had been done keeping in mind the IAF's requirement of weapons. In 2015, too, there was a similar requirement from the Air Force, but the price was aligned after "addition and deletion of certain weapons". In fact, this alignment in quantity of weapons led to a  saving of 1.05 per cent, according to the CAG report.

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But, the CAG report does not just cite the savings of the Modi government in its breakdown of the deal. Importantly, it notes that the 2015 deal did not have Dassault Aviation assure bank guarantee for the advance payment made by the Indian government; this wasn't the case in the 2007 deal with the UPA.

As per the CAG audit, Dassault Aviation had made a saving by not paying for this bank guarantee. Modi government, however, believes that the Indian government also saved money here because it did not have to pay for the bank guarantee charges either as part of the deal, the report said.