April 22, 2021
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Tardy progress
Money crunch may slow down MMRCA deal

The multi-billion dollar MMRCA deal is facing a new round of tests after Ministry of Finance (MoF) sent a word of caution last month to halt all big ticket defence deals for the time being and negotiations should be held only after the clearance is obtained.

The word of caution by the MoF was sounded out to Ministry of Defence (MoD) during a routine Cabinet meeting in which both Finance Minister Pranab Mukherjee and Defence Minister A K Antony were present.

The priority area for defence deals at the moment for the MoF is that deals worth less than 2 billion USD can be cleared immediately and the processing time for big ticket deals may take time as the UPA government is grappling with falling industrial output, raising inflation and volatility in Dollar-Rupee currency stability situation.

All this will put a further strain in coming months and there is no contingency plan available with the government to arrest the decline immediately, except making statements that it is all happening due to instability in economies of US and Europe.

The big ticket defence deals have also been opposed by some Cabinet members who are worried over the fallout of Indian import and forex reserve decline which will have a hazardous effect on the over all health of Indian economy.

On the top of it, the letter written by former Army Chief General V K Singh to the Prime Minister followed by gross irregularities and scams which are currently being grappled by the MoD, the government wants to go slow and keep the negotiation with Dassault Aviation into a state of non productive.

The change of guard in France has also some contributing effect as former President Nicolas Sarkozy was quite extrovert and had an excellent relations with India and personal equations with many in the power circle.

That part is missing with the new French President who is going to be more inward looking and focus on domestic issues or European matters. The worry here is that there were lot of unwritten commitments such as ToT issues, future technology cooperation and strategic commitments between France and India.

Therefore, the new French President may not push Dassault Aviation’s case so strongly like that of Sarkozy as the socialists would not like private companies to get more richer at the cost of state support, although the threat of doubling the tax on these companies looms large.

At such a situation, the MoF has asked the MoD to go slow on big ticket deals and the strong Dollar will drain out Rupee and forex reserve if the payments are made now.

The MoF has also put pressure on the MoD to either ask the vendor to lower the price tag or India should explore options to reduce the size of the MMRCA deal as the deal could now easily cross 1 lakh crore which is well ahead of bench marking price reserved for MMRCA deal.

If the size of the deal becomes a problem then there is a little possibility Dassault will agree to any cut down in its price index for jets. Ultimately, this may lead to reducing the number of jets which may lead to further complications as it will have to go to Defence Acquisition Council for taking fresh clearance.

In that case, there could be a bigger threat to the MMRCA deal as it will reverse the process at such a crucial stage. This will also have a strong impact on India’s prestige as a global power since many will question the country’s credibility.