Indian Defence and Aerospace Summit

Intense negotiations bring down price of rafale jets

Intense negotiations bring down price of rafale jets

By Ashish Singh | NEW DELHI | 25 September, 2016
These medium multi-role combat jets will give Indian Air Force an edge over its adversaries in Pakistan and China.
The 36 French-manufactured jets have additional weapons systems, including the game-changing METEOR and SCALP missiles that are part of the deal.

In exactly three years from now, the first of the 36 French-manufactured Rafale fighter jets will begin to land in India. These medium multi-role combat jets are expected to give Indian Air Force an edge over its adversaries in Pakistan and China because of the additional weapons systems, including the game-changing METEOR and SCALP missiles that are part of the deal India signed with France in New Delhi on Friday.

This inter-government agreement, sealed at a price much lower than what the former UPA government had been negotiating, comes after Prime Minister Narendra Modi opened fresh channels of communication with France in April 2015. In fact, the finer details of the deal were sealed on a hotline established between the Prime Minister and his French counterpart, President Francois Hollande. 

Speaking to The Sunday Guardian, after signing the agreement with French Defence Minister Jean-Yves Le Drian, Defence Minister Manohar Parikkar said, “This is an achievement that will give the Indian Air Force the required potency in terms of penetration and capabilities”. 

It was, however, not easy for the current government to scale down the price of the deal to €7.87 billion (Rs 59,000 crore), given that the previous UPA regime had been discussing the deal with the jet makers, Dassault, for €11.6 billion (Rs 87,000 crore). 

This deal will also boost PM Modi’s ambitious “Make in India” initiative because, as per the inter-government agreement, the French will invest half of the deal value in “Make in India” products.

It took hectic negotiations on part of Defence Minister Manohar Parikkar and the Indian Air Force to seal the deal at a price that gave India an upper hand. For that, the minister changed the basis of the entire price calculation with the French negotiators.

Defence Minister Parrikar asked the French negotiators to calculate the price based on actual cost (price as on today) and European inflation index (variable figure, currently at approximately 1% per annum). In fact, India had the inflation index capped at a maximum of 3.5%. This meant, India would never pay more than 3.5% even if the inflation indices were to go up. Going by European markets’ standards, chances are that the indices could plunge. 

On the other hand, the erstwhile United Progressive Alliance government had allowed France to negotiate price on the basis of fixed cost, which would include additional price of 3.9% inflation from the day of the deal. Under the condition, even if European inflation indices were to fall, India would have still paid more, as 3.9% inflation index had been added at the initial stage itself.

Defence Minister Manohar Parrikar and his French counterpart Jean Yves Le Drian shake hands after signing the deal on Friday.Under the present government, the negotiations with France picked up pace in January this year. In fact, within days of the conversation having begun, the deal was being pegged at €9.5 billion. 

India had invited French President Francois Hollande as the chief guest during India’s Republic Day celebrations on 26 January. A night before that, negotiations reached feverish pitch, in anticipation of a possible announcement at the time of President Hollande’s visit. Indian Ministry of Defence officials, Indian Air Force and Rafale-manufacturer Dassault burnt the midnight oil to get the minutiae pinned down. While the announcement got pushed back, India had already brought the price down to €8.597 billion. 

There was an effort to announce the deal when PM Modi and French President Hollande met on the sidelines of the G20 summit in Hangzhou, China earlier this month. It was apparent that the deal had been all but signed by then.

 

It was not easy for the current government to scale down the price of the deal to Rs 59,000 crore, given that the previous UPA regime had been discussing the deal with the jet makers, Dassault, for  Rs 87,000 crore. 

This deal will also boost PM Modi’s ambitious “Make in India” initiative because, as per the inter-government agreement, the French will invest half of the deal value in “Make in India” products. For this, Indian partners will be finalised within a year. 

The French will also have to ensure at any given point of time that at least 75% of the jets will have to be combat-worthy or operational, failing which India can levy heavy penalties. This basically refers to the maintenance of the fleet over a period of five years that Dassault will be responsible for. 

What could also be seen as an advantage for India is the possibility of Rafale jets being manufactured in the country itself. Dassault’s Aviation CEO, Eric Trappier pretty much indicated this when he told a news agency that “We will see how we can carry forward the ‘Make In India’ initiative. We are open to manufacturing Rafales in India.”

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