Contrary to widespread belief, signing of the final contract to purchase 36 Rafale warplanes manufactured by French aviation major Dassault Aviation is likely to face further delay, even as both governments — India and France — are all set to sign an agreement stating India’s intention to buy the fighter jets during the visit of French President later this month.
The agreement will only lay down the objectives of both governments to continue negotiating the deal as a “symbolic gesture” to the visiting French President. The agreement, shaped as an Memorandum of Understanding between both countries, will only state that India will buy these jets from France while actual negotiations on pricing, offset obligations and changes in design will continue, sources told BusinessLine.
Key factors
Negotiations, however, are far from being over with discussions stuck between both sides mainly on two issues. According to sources, pricing these 36 jets has become the most important sticking point. The French, it is learnt, is not ready to bring down the cost, which is pegged at €4-5 billion. India, on the other hand, has asked for further concessions.
Sources said the Ministry of Defence is cash-strapped and with sudden surge in expenses due to the Seventh Pay Commission, One Rank One Pension (OROP) scheme and payment of past Defence contracts have tied the hands of the Centre to ink such expensive deals such as the Rafale medium multi-role combat aircraft deal.
The French, it is learnt, have already secured billion-dollar contracts to sell Rafale jets to other countries such as Qatar and Malaysia, giving it an upper-hand in the ongoing negotiations with India.
Secondly, the Centre has fixed the offset requirements for this deal at 50 per cent from the usual norm of 30 per cent. This has also acted as another hurdle in the talks.
A team of French officials visited India last week for the final round of talks concerning pricing of the contract, offset requirements and how to bring the deal under Prime Minister Narendra Modi’s flagship ‘Make in India’ campaign, sources said.
Apparently, French Defence Minister Jean-Yves Le Drian is embarking on a visit to India a week before their President François Hollande sets foot here as the Republic Day chief guest.
Meanwhile, the Ministry of Defence is believed to be in “desperate need” for these fighter jets for the India Air Force. Additionally, the Air Force has also demanded certain changes in the design of the 36 jets according to their needs.
“Pricing is definitely huge hurdle in this. We cannot pay more and they cannot give more concessions. The French just had a few sales of Rafale jets with other countries, so they are not ready for anymore bargain. Besides, with the seventh pay commission and past Defence purchases, the government is facing a severely right budget. So, it cannot afford to pay more for these jets. The Defence budget is extremely tight and the room to manoeuvre is too less,” said Manoj Joshi, distinguished fellow, Observer Research Foundation.
Although the French President is making his second visit to India, this will be his first as Republic Day chief guest. Hence, as “symbolic gesture” it has been decided that the agreement will be signed in the presence of both leaders.
The original plan, mooted under the previous UPA government to buy 126 Rafale fighter jets, got stuck due to several hurdles in the tendering process, including the plan to jointly produce these jets remained in a hiatus. It had been decided then while 18 jets will be bought off-the-shelf, remaining 108 will be manufactured in India.
Meanwhile, when Modi visited France in April last year he announced the plan to buy only 36 Rafale jets in ready-to-fly mode for the Indian Air Force, dealing a body blow to his ‘Make in India’ programme.
