To take your ideas to Policymakers, Join the Campaign of #PolicyPulse Write to feedback@policypulse.com

Price Of Prized Rafale Fighter Jets

This new development in the chequered history of Rafale began with Modi’s visit to France in March last year.

Shankar Kumar
Publish Date: Feb 3 2016 6:09PM | Updated Date: Feb 3 2016 6:29PM

Price Of Prized Rafale Fighter Jets

Until a week before the arrival of French President Francois Hollande in India the picture of the purchase of Rafale aircraft was not so clear. A fogs of doubts lurked over the deal of high-tech fighter aircraft. Yet, some of the South Block mandarins knew that Paris would not let the deal to slip into the abyss of further uncertainty. Of course, France did exactly what was anticipated by signing a Memorandum of Understanding (MoU) for the purchase of 36 Rafale aircraft by India. Yet, there is a chance of the proverbial slip between the cup and the lip. Complexity over Rafale aircraft’s pricing could not allow it to become full and final deal. At the joint Press meet in Hyderabad House, Prime Minister Narendra Modi agreed that both sides resolved all issues except financial one on Rafale deal. However, he hastened to add that “India and France have agreed to resolve it (the financial issue) as soon as possible.”

 

During the Press briefing Foreign Secretary S Jaishankar repeated though in a different way what the Prime Minister said in the joint statement. “Both India and France have been able to reach agreements on very large area, particularly in non-financial areas and that on financial side we have yet to reach full agreement. People are working on it.” 

 

But when he was asked what the MoU signed between two nations for the purchase of Rafale aircraft signified and how the inter-governmental agreement on the issue could be interpreted, Jaishankar’s answer was: “What was signed today was an MoU and, when financial part is settled, then obviously the inter-governmental agreement in its entirety will be concluded.” A similar curt response he gave when he was asked how complex was the financial issue and how big was the difference between the price quoted by India and the amount fixed by France over each Rafale aircraft’s sale. “I would not say much beyond what is there in the joint statement,” he said.

 

Obviously, a seasoned diplomat like Jaishankar would not want to be caught in any word trap which may become controversial later. Also, at the outset itself, he had made it clear that even if he knew the price demanded by the French government and offer made by India, he would not reveal it. “What is the stage of financial negotiations is not something I would either know or share,” the Foreign Secretary said brusquely. But sources say that the French government wants India to take into account inflation factor and the cost involved in fulfilling the new offset clause which requires a manufacturer to invest 50 percent of the total deal value in ‘Make in India’ initiative.    

 

In this regard, the French side does not like to budge even an inch on aircraft’s price negotiated during commercial talks with India. In 2012 when Rafale fighters were selected by India following a grueling competition from the range of fighter aircraft manufacturers, along with technology transfer, the key issue on the table was that of pricing. France had put the price of Rafale aircraft at $200 million per unit.  But that was when India, following the original Medium Multi-Role Combat Aircraft (MMRCA) script, was looking for the purchase of 126-Rafale aircraft from Dassault aviation of France. The Modi Government has completely sidelined the old deal. It has categorically stated that it wants to buy only 36 Rafale aircraft and that too in fly-away condition and under the government-to-government deal.

 

This new development in the chequered history of Rafale began with Modi’s visit to France in March last year. In fact, it was done to quicken the acquisition process and to fill in critical gaps that the country faced on its projected airpower strength. Currently with 33 squadrons and each having 18 fighter planes, Indian Air Force (IAF) needs 42 squadrons by 2022. If acquisition process of 36 Rafale starts, it could add to two more squadrons.

 

To sort out finance, configuration, offset issue and delivery schedule among others, two joint commissions were set up: One for non-financial issues like configuration, delivery schedule, spare parts, life cycle and others, and second for pricing and offset clause. As per Foreign Secretary while all non-financial issues have been settled smoothly, the “complicated pricing issue has yet to reach full agreement.”

 

Experts cite the reason why aircraft price is still an unsettled issue. It is said that Dassault, the manufacturer of Raffale aircraft was seethed with problems until it got orders from Egypt and Qatar for Rafale jets off the shelf. In February last year, Egypt ordered for the purchase of 24 aircraft from France at $5.9 billion, while Qatar ordered for the same number of Rafale fighters in December. Qatar paid nearly $7 billion dollar for its order of 24 aircraft from Dassault aviation. Both Egyptian and Qataris paid considerably more than what India quoted for each unit of the French aircraft.  

 

India’s stand is that since the deal involved direct government-to government negotiations, there is no question of the country succumbing to manufacturer’s demand. It is said that they are asking for over $9 billion for 36 Rafale aircraft, but New Delhi has no plan to be so liberal with its purse. Sources say the Government wants the deal to be wrapped within $6 billion and that delivery process should start two years after the final agreement is signed. However, a buzz is doing rounds in the country’s defence circles leading to apprehensions that France would engage India over pricing till the time it fulfilled purchase orders from Egypt and Qatar. If that is case, it would rub Indian Air Force the wrong way. India would add several years to its already long waiting period to get the aircraft. Can the country afford it?