Case 7.1: Dassault Aviation and the Defense Ministry, India

1. Was the process by which the IAF and the MOD selected Dassault as the finalist in the MRCA tender closed bid legal and ethical, and why?

Answer: The selection process of Dassault as the winner of the bid needs to be revisited. Out of the six

vendors, two were shortlisted based on a detailed technical evaluation by the IAF. Further, the selection of Dassault was made citing it as the one with lower life-cycle cost. The process can be seen as partially legal as the selection was done by competent authorities from IAF and the lowest bidder was selected. However, since the procedure for calculating life-cycle costs itself was under scrutiny, we cannot say conclusively that the process was totally legal, partially it might be. The shortlisting process was not clarified, so there would be questions raised.

From an ethical point of view, we can definitely say that the process was unethical. The lack of transparency in such transactions which are of national importance is itself unethical. The selection could have long term strategic impact on India’s security and also on international relations, thus a more refined and professional approach was needed. In the larger context, the events after the selection indicate the unprofessional and lethargic approach of the Indian Government and its bodies(IAF, HAL)

2. Is the Indian Defense ministry morally justified in prolonging the Dassault-Rafale deal negotiation for over two years, almost doubling the cost originally agreed upon?

Answer: The primary purpose of the deal was to equip the IAF with high technology combat aircraft,

which is an issue of strategic and national importance. The delay which has resulted in doubling the costs could be attributed to the disagreements between the Defence Ministry, IAF, Dassault and HAL, and also because the process of vendor selection itself has been questioned by the Defence Ministry. It is understandable that such issues require thorough preparation for negotiations and getting the right deal is more important even if some more money gets spent. But unfortunately, the indecisiveness and incompetency of the government and its agencies has been the root cause of the delay. The decisions involved affect the morale of our military forces, and shows the government’s lack of sensitivity to such issues. The LCC issue could be resolved on priority and the Government can force its own agencies (IAF and HAL) to cooperate in making the deal at the earliest. It highlights the lack of political will and incompetency to negotiate a reasonable deal with the French firm. It must also be realized that the cost escalations will have to be borne by the taxpayers of the country.

Considering that such approach of the government hurts the national interests for the present and future, it cannot be morally justified in causing such a long delay and over expenditure resulting because of the delay.

3. Is this prolongation an example of good moral reasoning and good moral judgment?Answer: The incompetency of the government and its agencies in evaluating the technical and administrative issues in making this deal has exposed its inefficiency and might result in high money outflow from the

national revenues. It also severely affects the capabilities of our defense forces and lowers their morale. Although a very professional approach supported by intense internal preparations need to be adopted for making the best deal, but it does not mean that such exercise for fact finding and coordination between agencies can be allowed to go on for unlimited time, resulting in severe escalation of cost. Clarity of purpose and practices is missing to a large extent and there seems no urgency to provide better aircrafts to the IAF.This proves that such a long delay is an example of poor moral reasoning and judgment.

4. Given that India’s air defense based on aging and obsolete MIGs was progressively weakened, to what extent was the long delay in the Dassault-Rafale deal a prudent and brave proactive defense strategy? In short, was this delay a violation of the four cardinal virtues?

Answer: Prudence is the virtue that allows us to judge correctly what is right or wrong in any given situation. The long delay could be cited as a reason for chalking out a better deal, but the trade-offs also need to be considered. The Indian government failed to satisfy the urgent need for procurement of combat aircrafts. It was not able to understand the gravity of the situation and the implications of the delay, when it was already known that it would take minimum three years before the delivery of aircrafts. It is a matter of national security and morale of the forces. A proactive approach would have been to start thinking and evaluation of procurement options before the MIGs become obsolete. Thus it is clear that the delay was neither a prudent nor a brave proactive strategy. The indecisiveness has already lead to escalations of costs to huge proportions. The nation would have been better served if the hard earned money of taxpayers could have been used for other productive development jobs, considering, for example the lack of basic amenities (health, education etc.) faced by people in large parts of the country. The four cardinal virtues – prudence, justice, fortitude and temperance, have been violated, as the nation’s vital interests have been compromised for inefficiency and indecisiveness.

5. Is the French government justified in putting pressure on India for expediting the Dassault-Rafale deal?

Answer: The French government is justified in putting pressure for expediting the deal. This is because

there are costs of delay at their end also. They need to commit resources and plan their preparations, which have been hold up since long, which they cannot do in absence of a confirmation from India. Considering that Dassault was selected by following government’s own mechanisms and procedures, there should have been no reason for the delay in signing the contract. It is the lack of clarity and coordination and indecisiveness which is the main reason for delay.

It must be considered that such major deals are also influenced by factors like political and economic decisions in a country and also international relations. Why should Dassault wait indefinitely for the Indian government to respond? The French government is right in its intervention.

6. Is the LCC “conceptual shift” valid and necessary? Explain. Will it spur corruption? Answer:

The selection of the lowest price vendor also considered the life-cycle cost (LCC). But the concept of LCC itself is not clearly defined by the ministry and IAF. This is a long term contract and a number of unforeseen situations and costs might be incurred in the future, for which exact estimations cannot be made in the present day. This does not mean that the decision be postponed indefinitely. What is required is to understand the urgent need for procurement of the said aircrafts. Is not the escalation due to delay also a cost? Will the country not bear a cost if there is an enemy attack today, and the MIGs are not able to perform? Is the government not accountable for the deaths of IAF officers due to malfunctioning of the MIGs? Had the government been able to define parameters with reasonable amount of clarity as possible, this delay would not have occurred. In future, the country might forgive the government for a decision that goes wrong due to unforeseen changes in the world, but it might not forgive for losses due to inefficiency and policy paralysis on the part of government.

The lack of clarity regarding LCC can definitely be a source of corruption, as different agencies and political entities will try to interfere to achieve their own interests. If Bofors deal and 2G spectrum allocation could be affected by corruption, why not this one?

7. How can legal, ethical and moral reasoning skills and processes on the part of buyers and sellers bring this deal to a closure?

Answer: Dassault won the bid to supply aircrafts almost three years back (January 2012). Since then it

has been only a series of negotiations, and discussions between the four major stakeholders – Indian government, IAF, HAL and Dassault. The indecisiveness has led to the long delay and the resulting escalation of costs. It should be considered that this situation cannot go on indefinitely and it is in the best interest of all that a concrete decision is taken.

The legal framework of the international business deals and of the countries involved, might help to explore the time frame, cost considerations, and procedural boundaries which are permitted by law. Beyond the reasonable parameters defined by law, either the Indian government or the vendor, can refuse to continue the deal. The deal has long term strategic impact on the economic, and financial interests of both India and France, and law has set boundaries for discrepancies in these financial aspects (which are easier to measure than several other implications that the delay might cause).

The ethical processes and skills can be involved in evaluating the delay that has created a standstill between the buyer and seller, and both of them might have genuine concerns and interests to protect. At the same time, they are accountable to the people of their country. Following ethical principles might help to understand the vital role and hence expedite the decisions.

It is also the moral responsibility of the people in power- ministers, and executives of the firms involved, to take stock of the situation and help in the faster procurement of aircrafts that are needed by the IAF on priority. In no case the nation should suffer because of the inefficiencies of few people. It is ultimately people who make (or break) policies and take action, so there is no reason a coordinated effort supported by willpower cannot resolve the issue.

The judicious use of legal, ethical and moral skills and processes can help to bring this deal to a closure as explained