Bhushan, Sinha and Shourie on Rafale

Late on Wednesday evening in Singapore, a good friend forwarded me this link and asked me to go through it fully. It is a press statement or article written by M/s Yashwant Sinha, Arun Shourie and Prashant Bhushan.

At the outset, we have to note that the first two were Ministers in NDA 1 government of Vajpayee. PM Modi has sidelined them. They are bitter and angry. Mr. Bhushan was part of AAP and has pitted himself against the NDA 2 government in many instances.

Their press statement was released in which is also not so favourably disposed towards the NDA 2 government, to put it mildly.

Most SELL-SIDE research (research by stockbrokers and investment banks is called SELL SIDE research) in Financial Sector falls under this category. When they issue a BUY call on a stock, one does not know if they truly believe in the stock or if their investment banking interests dictate that they issue a BUY recommendation. There is a natural conflict of interest. So, it will be of interest and worthy of attention only when SELL SIDE issues a SELL recommendation.

So, like the SELL SIDE above, these three gentlemen have a natural conflict of interest. They have an axe to grind. When someone is bitter and has a personal animus, there will be a tendency to overstate the case, exaggerate a bit here and there and hide some inconvenient details, etc. One cannot lightly dismiss these possibilities.

Therefore, they have to make a rather rigorous case to convince the listener/reader that they have risen above their personal considerations. In this particular instance, when they have taken up something as important and critical as national security, the onus on them to be thorough with their homework is several notches higher.

My current reading of their press statement does not convince me that they have passed the above test. May be, I am wrong. One can never be certain, if one were honest.

To summarise their statement, they think that Government of India is vastly overpaying for the Rafale jet fighter, implying kickback, etc. It is not sharing the details of the contract. It has awarded the ‘Manufacturing under license’ to a favoured Indian private sector entity. These are serious allegations. Very serious. So, how seriously should we take them?

1) what is HAL’s record in defence production? How long did it take to produce the Light Combat Aircraft (single-jet, single-seat) and how comfortable are the Indian Navy and Air Force about the LCA? See here for details. It is a bit strange that Dr. Shourie, the man who privatised public sector enterprises is now batting for HAL with its track record of delivery.

(2) The questions raised by the three gentlemen sound so obvious. So, why were they not raised before and by others?

(3) How many defence manufacturing firms were there in India in the pvt. sector before? I presume the answer is zero. So, naturally, no firm will have a record. You have to begin somewhere.

(4) Understand the hsistorical context: When Korea wanted to become a steel power, they had no resource advantage or knowhow. They told Japan to pay war reparations in steel drawings and plans and depute people. The rest is history. Moral of the story: one has to start somewhere.

(5) Didn’t the French Government endorse the GoI answer on certain confidentiality provisions, after the ‘No confidence’ motion debate? See here:

Hours after Congress president Rahul Gandhi questioned the Rafale Deal, France responded saying a security agreement it concluded with India in 2008 legally binds the two countries to protect the classified information relating to operational capabilities of defence equipment.

That seems to make sense. Few countries would want details of the exact weaponisation and the customisation of a fighter plane to be made public. In fact, there is a healthy precedent with the UPA government Defence Ministers on this. See here.

(6) According to a Government of India press release, the process of acquiring a fighter jet was initiated in 2002 when NDA 1 was in office. UPA 1 and UPA 2 were in office for ten years from 2004 to 2014. They had not finalised and procured the fighter jets in these ten years.

The contract was signed late in 2016 finally, I think. By, August 2016, it was not signed yet. See here.

(7) The three gentlemen follow the ‘post hoc ergo propter hoc’ logic with many of their assertions. In other words, they are innuendoes, as of now.

(8) The clincher: the price of Rafale aircraft:

The most serious allegation that the three gentlemen have brought up is that the Government of India has increased the price from 670 crores per plane conveyed to the Indian Parliament in Nov. 2016 to 1660 crores per plane now!

In Feb. 2015, the French government agreed to sell 24 Rafale Jets to Egypt at EUR5.2 billion. Taking the average exchange rate of EURUSD and USDINR in Feb. 2015 (Source:, the price per aircraft works out to Rupees 1525.2 crores. That was in Feb. 2015. The Indian Rupee is now 10% weaker (USDINR = 68.60) than it was in Feb. 2015 (62.03735 USDINR then) and there are India-specific customisation which could be different from Egypt’s.

So, the current price of Rupees 1660 crore per aircraft for India does not seem odd or does not stink. Perhaps, there is nothing to see here.

It is quite possible the Minister who gave the price of 670 crores per plane in November 2016 was misquoting or did not take into account the correct exchange rate.

Many seem to forget that the Indian rupee depreciated 50% against the US dollar in 2011-13 period, thanks to double-digit inflation, high current account deficit and high budget deficit under UPA 2 government.

Yes, Indian sloppiness can be and is a security risk. Worse, India’s economic performance then was bigger security risk and some are working overtime to bring the risk back.

(9) Now, what about the bad debt problem in the Indian banking system? I think it is a very big economic and a security risk.

Let us crunch some back-of-the-envelope numbers:

India’s nominal GDP as of March 2018: 168,000,000,000,000.0

Stressed loans at 8% of GDP:                     13,440,000,000,000.0

Assume 60% goes bad                                   8,064,000,000,000.0

Assume 50% recovery rate; rest bad:        4,032,000,000,000.0

That can buy                                                   242 Rafale jets at the price of 1660 crores per                                                                                 plane.

Did the three gentlemen issue a press statement and urge the Opposition political parties to get to the route of the bad debt problem in Indian banks, to find out when these loans were made (under UPA 1, UPA 2 or NDA 2?), to whom, recommended by whom (UPA or BJP politicians?), sanctioned by whom and approved by whom and under what authority, etc.?

Tail-piece: In India, nothing except obituaries seems to be above politics. See here. Not even national security.

Final word:

Notwithstanding the above, given the nature of the allegations and given the previous Cabinet status of the two gentlemen making the allegations, it is incumbent upon the Government to share as much details as possible with the public to assure them that the transaction has been undertaken solely with natinal interest in mind and that it is above board.

One thought on “Bhushan, Sinha and Shourie on Rafale

  1. good, objective, first cut analysis of data put out in the press conference. expect a lot of discussion in the coming days. some points come to mind. (a) when it comes to military technology, ALL countries keep PSU’s if not govt companies / labs in the loop. they want tech transfer, and that too not solely in the custody of a private company. so HAL track record or no, has a strong case to be in the loop. (b) offset obligations (pioneered by Israel) are meant to transfer part of the business as well as know-how back to the buyer country. the flowback of business is like a fiscal push to domestic economy. it is strange that 49% of the offset business will actually go back to the foreign supplier. does it not defeat the very purpose of offsets? or maybe i am missing something. (c) as per current news india won’t be getting its first fighters till 2022, which is almost seven years after the 2015 signing. so much for haste! that too in getting quick delivery of “fly-away” condition fighter jets.



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