In the ongoing uproar between the Modi Government and Opposition parties over the $8.85 billion Rafale fighter jet deal, marred with accusations and cries of blatant corruption, brazen cronyism and wanton deals, a clear and straightforward fact seems to have been drowned in the melee of claims and counter-allegations between the two warring sides: Why is Defence Minister Nirmala Sitharaman trying to distance herself from the joint venture?

The last few months have seen the Modi Government trying to befuddle its role in the Rs 30,000 crore offset deal awarded to Reliance Defence for the manufacture of aircraft components for Dassault Aerospace, which won the contract for selling Rafale jets. It has made all kinds of contradictory statements, which throws a cloud on its role and intentions, and thus raises doubts and questions but it’s mystifying why Sitharaman has persistently said she has no idea of the offset partnership between Dassault and Reliance.

Two days ago, Sitharaman, in a flurry of interviews to the media, declared that she had nothing to do with the Opposition-termed “corrupt and crony” Reliance-Dassault offset deal. As she acidly remarked to the Indian Express: “I have not done any match-making whatsoever. Isn’t it the decision of a commercial enterprise to take on its own? I have nothing to do with, I have not prompted them, not told them, not instructed them.”

Now, Sitharaman is right when she says she did not “match make” between the two commercial partners of Reliance and Dassault. After all, she was appointed as Defence Minister only 11 months back (September 2017) after the joint venture between Dassault and Reliance was signed. But to insist till this day that she is unaware of the JV between the two companies—is completely baffling.

Let’s look at the chain of events leading to the Reliance-Dassault deal.

Dating as far back as October 2016, the media reported the announcement of a joint venture between Dassault and the then Reliance Aerospace, and their plans to set up a facility spread over 100 acres in Mihan, Nagpur. The joint release said that the JV would be a key player in the execution of offset obligations for the mammoth Rs 60,145 crore contract for the Rafale jets. A company source had said at the time that the aim was to build an integrated facility to progressively bring the Make in India components in the Rafale jets to 50 per cent.

A year later in October 2017, one month after Sitharaman took over as Defence Minister, the spanking new Dhirubhai Ambani Aerospace Park in the Mihan Special Economic Zone (SEZ) was ready to host the foundation-laying ceremony of the now-named Dassault Reliance Aerospace Limited (DRAL). While Sitharaman was nowhere in sight, the glitzy affair was attended by Reliance Chairman Anil Ambani and Sitharaman’s Cabinet colleague, who is also Surface Transport and Highways Minister, Nitin Gadkari, as well as Maharashtra Chief Minister Devendra Fadnavis.

As Ambani exulted at the ceremony: “It was Gadkariji who first suggested the idea of Nagpur. He said he will banish me from India if I took the project elsewhere. The CM (too) said everything I need will be done for the project at Mihan. I don’t think there’s a better example in ease of doing business.” He adds with a flourish: “Thank you Gadkariji for twisting my arm and making me come to Nagpur.” This could not be a more flattering testament by an industrialist to a political leader.

But even today, Sitharaman insists that she does not know which Indian company Dassault is partnering with to execute its offset obligations. Earlier this year, on February 7, her ministry, in an official release to the media, stated: “No Indian Offset Partner for the 2016 deal for the 36 Rafale aircraft has been so far selected by the vendor (Dassault Aerospace) because as per the applicable guidelines, DA is free to select the Indian Offset Partners and provide their details at the time of seeking offset credits, or one year prior to discharge of offset obligation.” The bizarre official press note came after a major display by Reliance and Dassault at the Mihan inauguration, in the presence of Gadkari and Fadnavis.

At the heart of the matter is why did the Modi Government deny its own public sector company Hindustan Aeronautics Ltd as Dassault’s offset partner, and award the Rs 30,000 crore offset contract to Reliance Defence? While the Modi Government insists it changed the original deal of 126 Rafale jets to 36 jets in an inter-governmental agreement between India and France; though at a new, astronomically higher price, yet it defends the Dassault -Reliance partnership as a choice between two commercial partners.

However, the 50 per cent offset agreement obligates Dassault to reinvest half the money from the deal in India. The mystery only deepens with Sitharaman washing her hands off the matter by insisting she has no idea of the offset partnership.

Sitharaman’s retort is all the more baffling because she must know her own ministry’s rules for awarding offset contracts—especially of a contract worth Rs 30,000 crores. According to Defence Procurement Procedure 2012 -revision of Defence Offset Guidelines, it must not just give details of the Indian offset partners, but also assist vendors (foreign arms manufacturers) in interfacing with Indian industries (Clause 6.2 Defence Offsets Management Wing). The Commercial Offset Offer (8.4 Commercial Evaluation) will contain the detailed offer specifying the value of the offset components, with a breakdown of the details, phasing, Indian Offset Partners and banked offset credits proposed to be utilised.

And, of course, “all offset proposals will be processed by the Acquisition Manager and approved by the Raksha Mantri regardless of their value (8.6 Approval Authority).”  There are also the half-yearly audits conducted by Defence Offsets Management Wing (8.8) apart from the annual report to the Defence Acquisition Council—all of which underlines obligations of offset partnerships under the Defence Minister.

It is significant to look at what offset means and why it raises so many questions. Offset is the practice of demanding transfer of technology to local manufacturers to build the product or ancillary products, an obligation which many countries demand from foreign arms suppliers when they spend astronomical sums of money to buy defence equipment. A Financial Times investigation in 2013 to assess the size of the offset trade shows that “offsets have become important to win international business. In fact, for some countries, the offsets on offer have become as important as price and quality when it comes to making decisions about which defence company’s product to buy.”

Opponents, however, say “offsets are akin to a bribe,” according to the FT article. They argue “that necessity, quality and price should decide whether and what defence equipment a country buys. But offsets increase the chance that a country buys equipment it does not need or decides to sign a contract that does not offer the best in quality and value.”

However, even as the controversy rages, the Modi Government seems to be flip-flopping on the role of Reliance Defence in the manufacture of 36 Rafale jets. When the deal was signed for 36 jets in September 2016 between the French Defence Minister and the then Defence Minister for India Manohar Parrikar, France was expected to invest 30 percent of the contract in India’s defence related programs and 20 percent into “local production of Rafale components” in order to fulfil the mandatory offsets of the deal.

In October 2017, the Dassault Reliance JV announced an investment of 100 million Euros for production of Rafale components in Mihan, Nagpur. The JV also said it will be involved in the production of components for the Falcon 2000 series of civil jets which Dassault makes, and it intends to also set up the final assembly of both— Rafale and Falcon. A month later in November, Dassault chairman Eric Trappier, in an interview to the Hindu newspaper, said that “certain parts of the Rafale and Falcon are going to be manufactured in India to start with. We will take a step-by-step approach and we will start manufacturing parts of Rafale in this facility. If there are new orders, we will look at manufacturing here too.”

In April 2018, Trappier reiterated his offset commitment to “manufacture the Rafale jets in India” with no mention of components; the statement came on the heels of the Defence Ministry’s request for information (RFI) from global aerospace manufacturers for the acquisition of 110 fighter jets.

Last month, in August, in an absurd twist, Anil Ambani wrote to Rahul Gandhi to clear the air about Reliance benefitting “by thousands of crores.” He said: “All the 36 fighter jets are to be 100 per cent manufactured in France, and exported to India. Our role is limited to offset exports/ export obligations. More than 100 medium, small and micro industries will participate in this…”

Is Sitharaman being turfed out by the Boy’s Club – after all the Reliance Dassault deal was inaugurated by Gadkari and Fadnavis? Or is she not in agreement at all with the way the deal was done? Defence Ministry officials have raised questions about the credit rating of Anil Ambani’s companies as Reliance Communications, it’s flagship company, has debts of $18 billion, and is embroiled in court cases because of its inability to pay back lenders.

Auditors have also raised doubts over Reliance Naval and Engineering Ltd’s future and the company’s ability to go on with mounting losses of over Rs 1000 crores this year. The Ministry’s defence procurement guidelines underline the importance of credit ratings of vendors.

In her reply to the Indian Express in the same interview on why she denied the Russians to manufacture AKs with private player Adani in India, Sitharaman said: “When it is an inter-governmental agreement for us to do the production here (not offset obligations but straightforward manufacture), and (if) I have the existing capacity to produce guns in India through the Ordinance Factories Board, I would prefer to have them produce it through the OFB.”