Modi's Multi-Billion Dollar Warplane Deal Faces Fresh Scrutiny
(Bloomberg) -- India’s prime minister is facing allegations his administration acted improperly on a multi-billion dollar warplane contract with France, keeping alive a controversial issue that could dent the ruling party’s reputation as it heads to elections next year.
Francois Hollande was president when Indian Prime Minister Narendra Modi visited France and signed an $8.7 billion deal for Dassault Aviation Rafale aircraft in 2016. He told French news site Mediapart.fr that his government was told to partner with a specific Indian firm, Reliance Group, for additional “offset” investments.
The remarks from the former French leader contradict what Modi’s government, the current French government and Dassault have said previously about the selection of Indian business magnate Anil Ambani’s Reliance Group.
"The Indian government proposed this partner and Dassault negotiated with Ambani," Hollande said, according to the report posted on Sept. 21 that referred to the Ambani family, who are dominant in the Indian business world. "We were given no choice, we took the partner which was appointed."
The administration of Emmanuel Macron and Dassault both issued statements after Hollande’s comments saying the choice of Reliance Group was made by Dassault. The French government says it played no role in Dassault’s selection of Reliance. Dassault said the first contract was a government-to-government contract, and that the company then picked Reliance for their partner in a separate offset contract.
However, the former French president’s comments appear to bolster long-standing allegations from the opposition Congress party that India’s prime minister executed a deal that unduly benefited the Ambani family – which includes Anil Ambani’s brother Mukesh Ambani, Asia’s richest man. Ahead of India’s 2019 general election, in which Modi’s Bharatiya Janata Party will campaign on its pro-poor policies and economic development record, the allegations of impropriety against the government could provide fuel to opposition critiques that the prime minister is too cozy with tycoons.
“If these developments are true, the BJP could suffer a major political blow, especially with elections just around the corner,” said Michael Kugelman, a senior associate for South Asia at the Woodrow Wilson Center in Washington, D.C. “Hollande’s revelation undercuts the image that the BJP likes to project of itself as a squeaky-clean party. More broadly, the possibility of New Delhi doing a favor for a pro-government corporate titan in the high-stakes, big-money world of arms sales -- the optics are dreadful, and the reputational costs for the government could be considerable.”
A spokesman for India’s prime minister’s office did not answer a call or text message on Saturday. Finance Minister Arun Jaitley, who also previously held responsibility for defense, said in a Facebook post on Sept. 20 Gandhi’s repeated allegations on the Rafale deal were a "campaign of falsehood."
On Friday evening, the official Twitter account for India’s defense ministry said the report of Hollande’s comments were “being verified,” but that the Indian and French governments did not have a role in Dassault’s decision.
“The French government is in no manner involved in the choice of Indian industrial partners who have been, are being, or will be selected by French companies,” a French foreign ministry spokesperson said in a statement on Friday.
The French company said: “Dassault Aviation has decided to make a partnership with India’s Reliance Group. This is Dassault Aviation’s choice.”
Reliance declined to comment on the allegations. Reliance Defence & Aerospace president Rajesh Dhingra told India’s Economic Times on Aug. 8 the allegations were "unfounded" and that Congress comments on Rafale were "a deliberate attempt to mislead."
Congress party president Rahul Gandhi has frequently accused Modi’s government of scrapping an earlier 126-jet deal negotiated by the previous Congress government in favor of a personally-negotiated deal for 36 aircraft that cost more on a per-plane basis and unduly benefited Reliance. Modi’s government has denied those allegations. Dhingra, the Reliance president, previously refuted allegations in the ET interview that there was impropriety in the selection of Reliance as an offset partner.
Gandhi also alleged that Reliance had no experience making fighter jets and was not in a financial position to receive such a prominent, so-called “offset” contract, which requires companies to invest additional money in India. Dhingra has also said the lack of fighter jet manufacturing experience was irrelevant since the jets are being delivered by Dassault in "fly away" condition.
Modi’s government has consistently denied it played any role in Dassault’s selection of Reliance and that there was no impropriety involved in the process.
Gandhi, who has spoken about the issue in India’s parliament, lashed out at Modi on Twitter on Friday, saying Modi “personally negotiated & changed” the Rafale deal behind closed doors.
“Thanks to François Hollande, we now know he personally delivered a deal worth billions of dollars to a bankrupt Anil Ambani,” Gandhi wrote. “The PM has betrayed India. He has dishonored the blood of our soldiers.”
With Modi soon to face elections, the opposition’s allegations about the Rafale deal could dent his popularity. However, analysts cautioned that the intricacies of complex defense deals may not resonate with voters more concerned about inflation and the rising price of fuel.
“It’s unlikely to blow up into a full scale issue,” Shailesh Kumar, Asia director at risk firm Eurasia Group. “The opposition’s arguments are simply not holding the public’s attention.”
©2018 Bloomberg L.P.