April 22, 2021
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Uncertainty persists
MMRCA deal divides MoD and MoF: India evaluating options for paying advance  

With the growing economic complications grappling the government, the multi-billion dollar MMRCA deal has sharply divided Ministry of Defence (MoD) and Ministry of Finance (MoF) over the financial feasibility and lack of proper negotiations involving such a mega deal that can either be a boost or a disaster for India, if all procedures are not followed wisely.

Now, there is a growing problem between the MoD and MoF as the latter is finding that the deal is lacking proper file work to justify the financial prudence for future viability of the deal. For example, when the whole deal was worked out at that time Euro was 52 Rupees but today it has touched 77 Rupees.

This has upset the bench marking pricing which was put at Rs 68,000 crore at the time of RFP way back in 2008 but today the deal has crossed well above the mark of 1,20,000 crore. The fear is if Rupee fails to stabilize in future it can go further at a time when the government is facing a widening current account deficit and higher fiscal deficit.

Yet, despite all these complications staring at the government account, the MoD is keen that it should be inked during Antony's tenure so that the credit can go to the UPA for strengthening India’s military preparedness to face a dual front threat.

Although time is running out fast, government insiders think this is a golden opportunity for the MoD under A K Antony to clinch such a mega deal that can turn India into a credible defence manufacturing hub. For sure, without MMRCA deal it will not be possible.   

The MoD which wanted to finish the remaining rounds of talks before October 31 is grappling with MoF’s additional information which is required to make the files complete and procedural formalities to stand financial scrutiny.

The MoF has made it mandatory for such a mega deal to be very precise and well documented as it will continue over a period of one decade or more. But in August, the MoD put forward a plan to make advance payment for the MMRCA while the negotiation can go on even to the next financial year.

The MoD has been insisting that the delay will create further problem as there is hardly any time left to verify everything before hand at this stage. Since the government is preparing to go for elections early next year, more complications will arise. Thus, a short cut way should be the first approach to overcome the delay.

Simply, the election model code of conduct will soon be announced and the government will be handicapped to clear such a mega deal. Although in the name of national security it can be cleared, Congress-led UPA is neck deep in corruption thus the opposition will smell a rat in the whole exercise if proper procedures are not followed.

The MoF is insisting that the file procedures should be completed as per Indian government guidelines but the MoD wants to move fast and make the advance payment to retain the deal. Otherwise, some officials believe that the French arms maker might increase the price due to currency volatility and price escalation.

The MoD and MoF are at the loggerhead about the technicalities of the MMRCA deal. While the MoD thinks it must clear the deal by November or early December, the MoF feels that it may create problems in future for both India and France if the deal is made hastily.

The way forward in such a situation is that the Indian Government is evaluating various options including the same pattern as it was done in case of Sukhoi deal with Russia in the 90s.

The idea is India can pay 25 per cent of the deal which is more that 2.5 billion USD as advance money to France to secure the deal, if not fully clinched, through a Memorandum of Understanding MoU), just to take care of the continuity.

Even if the next government is going to be from the opposition even then the Government can resume the negotiation from where it was halted previously without much problems.