France says Rafale maker given free hand; unnecessary row, says Indian Defence

After former French President Francois Hollande’s reported sensational comments that India proposed Reliance Defence as offset partner for the Rs 59,000 crore Rafale fighter jet deal, the French Government on Saturday said it is in no manner involved in the choice of the Indian partner.

It added French companies have the full freedom to select Indian firms and Dassault Aviation, manufacturer of Rafale jets, said it is the company’s “choice” to partner with Reliance Defence.

“Dassault Aviation has decided to make a partnership with India’s Reliance Group. This is Dassault Aviation’s choice,” the company said.

Reacting to the French Government’s claim and Dassault Aviation’s admission, the Indian Defence Ministry said “unnecessary controversies” are being created and reiterated that the Indian Government had had no role in the selection of Reliance as an offset partner in the deal.

The French Government and Dassault company’s clarifications came after Hollande in an interview to a French publication Mediapart said on Friday, “It was the Indian Government that proposed this service group, and Dassault negotiated with Ambani. We had no choice, we took the interlocutor who was given to us.”

Reacting to Hollande’s comments, the Indian Defence Ministry had said on Friday, “It is reiterated that neither the Government nor the French Government had any say in the commercial decision.”

On Saturday, the Defence Ministry said, “Unnecessary controversies are being sought to be created following media reports regarding a statement purportedly made by the former French President, Francois Hollande, concerning the selection of Reliance Defence as the offset partner by Dassault.”

The reported statement perhaps needs to be seen in its full context — where the French media has raised issues of conflict of interest involving persons close to the former President. His subsequent statements are also relevant in this regard. For a rounded appreciation of this matter, it may be pertinent to dwell upon why and how Offset Policy came into play.  The Offset Policy was formally announced for the first time in 2005 by the then UPA Government and has been revised several times.  To leverage its huge arms imports in order to develop a strong indigenous industry, a flow-back arrangement is made in the defence contracts, which is widely known as offsets, and constitutes a certain percentage of the contract value.

The key objectives of the Defence Offset Policy is to leverage the capital acquisitions to develop

Indian Defence industry by fostering development of internationally competitive enterprises; augmenting capacity for research and development in Defence sector and to encourage development of synergistic sector like civil aerospace. 

The offset can be discharged by many means such as direct purchase of eligible products/services, FDI in joint ventures and investment towards equipment and transfer of technology.

As per Defence Offset Guidelines, the foreign Original Equipment Manufacturer (OEM) is free to select any Indian company as its offset partner.

It has been reported that a joint venture between Reliance Defence and Dassault Aviation came into being in February, 2017.  This is a purely commercial arrangement between two private companies. 

Incidentally, media reports of February, 2012 suggest that Dassault Aviation, within two weeks of being declared the lowest bidder for procurement of 126 aircraft by the previous Government, had entered into a pact for partnership with Reliance Industries in Defence sector.

Dassault Aviation has issued a Press release stating that it has signed partnership agreement with several companies and is negotiating with hundred odd other companies.

As per the guidelines, the vendor is to provide the details of the offset partners either at the time of seeking offset credit or one year prior to discharge of offset obligation, which in this case will be due from 2020.

In view of above, it is once again reiterated that the Government of India has no role in the selection of Indian Offset partner which is a commercial decision of the OEM, the statement said.        

The decision to procure 36 Rafale fighter jets in a government to government deal with France was announced by Prime Minister Narendra Modi after holding talks with then French President

Hollande on April 10, 2015 in Paris.  The formal contract was signed in September 2016.

Responding to Hollande’s reported remarks, the French Government said it “is in no manner involved in the choice of Indian industrial partners who have been, are being, or will be selected by French companies.”  Some television channels reported that Hollande’s office said he stood by his remarks made to ‘Mediapart.’

In its statement, Dassault Aviation said it has decided to make a partnership with the Reliance Defence in accordance with the policy of ‘Make in India’.  “This offsets contract is delivered in compliance with the Defence Procurement Procedure (DPP) 2016 regulations. In this framework, and in accordance with the policy of Make in India, Dassault Aviation has decided to make a partnership with India’s Reliance Group. This is Dassault Aviation’s choice,” the French company said.

The French Government said, “In accordance with India’s acquisition procedure, French companies have the full freedom to choose the Indian partner companies that they consider to be the most relevant, then present for the Indian Government’s approval the offsets projects that they wish to execute in India with these local partners so as to fulfil their obligations in this regard.”

The French Government also said the inter-Governmental agreement it signed with India for supplying 36 Rafale aircraft concerns its obligations solely with regard to ensuring the delivery and quality of the aircraft.  “As it happens, agreements have already been signed by French companies with many Indian firms, both public and private, under the framework of Indian laws,” the statement said.

The Indian offset policy mandates that foreign defence manufacturers have to invest at least 30 per cent of the total amount of the deal in India.  In case of the Rafale deal, the offset obligation is nearly 50 per cent.   Ten days after the Government to Government pact, Reliance Defence and Dassault had announced a joint venture (JV) in the aerospace sector and a year later, the foundation stone of a manufacturing facility was laid in Mihan, Nagpur.

In its statement, Dassault Aviation said the contract for supply of 36 Rafale jets is a Government-to-Government agreement, adding “It provides for a separate contract in which Dassault Aviation commits to make compensation investments (offsets) in India worth 50 per cent of the value of the purchase.”

The company also said its partnership with Reliance has led to the creation of the Dassault Reliance Aerospace Ltd (DRAL) joint-venture in February 2017.

“Dassault Aviation and Reliance have built a plant in Nagpur for manufacturing parts for Falcon and Rafale aircraft. The Nagpur site was chosen because of the availability of land with direct access to an airport runway, an essential condition of aeronautic activities,” it said.

“Other partnerships have been signed with other companies such as BTSL, DEFSYS, Kinetic, Mahindra, Maini, SAMTEL,… Other negotiations are ongoing with a hundred-odd other potential partners. Dassault Aviation is very proud that the Indian authorities have selected the Rafale fighter,” said the company.