A Guide to the Controversy Over Modi’s French Fighter Jet Deal

(Bloomberg) -- In 2016, India Prime Minister Narendra Modi signed an $8.7 billion deal for 36 Rafale fighter planes from France. On the back of the government-to-government contract, the French plane manufacturer Dassault Aviation SA agreed to a so-called offset deal with an Indian company run by one of the nation’s wealthiest businessmen, Anil Ambani. Controversy has swirled ever since over whether -- as Dassault and the French and Indian governments say -- the choice to partner with Reliance Group was Dassault’s alone or, as India’s opposition Congress party alleges, a result of pressure from Modi’s administration to push business Ambani’s way. It’s a simmering controversy that threatens to undermine the government’s anti-corruption credentials in the run-up to the 2019 general election. And it’s been stirred by Francois Hollande, who was French president when Modi signed the deal.

1. What has Hollande said?

Hollande says India’s government proposed billionaire Ambani’s Reliance Group to work with Dassault. "We were given no choice, we took the partner which was appointed," the former president was quoted as saying by French investigative journal Mediapart in September. Hollande made the comments while responding to a report about a Reliance Group company co-producing a movie with Hollande’s partner Julie Gayet. The movie deal was announced just days before Hollande signed the agreement to sell the jets. A spokesman for Hollande said Oct. 1 there was no conflict of interest.

2. What’s an offset deal?

When a foreign company wins a defense contract with the Indian government, it’s required to make investments in India valued at 30 percent or more of the deal. It’s part of a so-called offset policy to promote domestic defense production. In the case of the Rafale purchase, the offset was 50 percent, so requiring more than $4 billion in return investments. Reliance Group called it the "the largest ever offset contract in the history of India." Following Hollande’s comments, Dassault said it had signed partnerships with companies other than Reliance Group and was in negotiations with around 100 other firms.

3. What does India’s opposition say?

Congress party leader Rahul Gandhi has raised the matter in parliament and attacked Modi and Ambani in emotional tweets, saying they "dishonored the blood of our martyred soldiers" and "betrayed India’s soul." Gandhi alleges that his party had negotiated a more affordable deal with Dassault for 126 Rafale jets when it was in government. He says Modi scrapped that in favor of a "personally negotiated" sale that delivered "a deal worth billions to a bankrupt Anil Ambani," whose firm Gandhi says had no aerospace experience and was not qualified for such a contract.

4. What does Modi say?

In a raucous parliamentary session in July, Modi said the Rafale deal was "completely transparent" and that the opposition was "trampling on the truth." While Modi hasn’t responded to Hollande’s comments, Arun Jaitley, his finance minister who was previously responsible for defense, posted on Facebook that the Rafale jet deal and the Dassault-Reliance partnership were completely separate. He also noted that Hollande made the comments while defending himself against an alleged conflict of interest. As for Ambani, he wrote a letter to Gandhi calling the allegations "baseless, ill-informed and unfortunate." The administration of French President Emmanuel Macron and Dassault both issued statements after Hollande’s comments saying the choice of Reliance Group was made by Dassault. Reliance Group declined to comment.

5. What’s the fuss over the Ambani family?

The controversy has lingered in part because of the Ambani name. Like the Tatas and Birlas, the Ambanis represent the enormous wealth accumulated by Indian family business groups that control vast industry-spanning conglomerates and wield considerable influence in the country. Anil Ambani’s path has diverged from his brother Mukesh’s since they divided their father’s Reliance Industries empire in 2005. Anil faced insolvency applications against his Reliance Naval & Engineering Ltd. and this year had to sell his telecommunications company’s wireless assets to help pay down debt. The buyer? Mukesh Ambani, who in 2018 overtook Jack Ma as Asia’s richest person.

6. Is this the only thing controversial about the deal?

Modi’s sudden announcement of his intention to buy 36 Rafale aircraft "off the shelf" on a trip to France in 2015 caught many by surprise, including his own administration. (His defense minister was inaugurating a fish stall in Goa at the time.) That’s partly because it followed a decade-long negotiation for a 126-jet contract, in which 108 Rafale warplanes would have been built in India by state-owned Hindustan Aeronautics Ltd. It was a deal that the company’s former chairman recently said would have been doable, prompting Gandhi to hammer the government over the lost jobs.

7. Is anyone investigating the Rafale deal?

No. While India’s opposition has called for a probe, the government strenuously denies any impropriety so is highly unlikely to heed the call.

8. Will it affect India’s 2019 election?

Modi has nurtured a pro-poor, anti-corruption image, so accusations that he’s handing lucrative contracts to billionaire tycoons could be damaging. Back in 1989, graft allegations related to an artillery sale by Sweden’s Bofors AB contributed to Rajiv Gandhi’s election defeat. But analysts doubt it will come to that. The government’s image of incorruptibility may be dented, according to Milan Vaishnav, director of the South Asia program at the Carnegie Endowment for International Peace. "But one should not overstate the relevance or visibility of this dust-up for the common person in India," he said.

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