Challenges for finalizing Rafale deal
After an out of box , surprise solution was evolved by Prime Minister Narendra Modi during his visit to Paris in mid - April for urgently meeting the fighter requirements of the IAF. A high level negotiating team from India headed by Air Marshal SBP Sinha from the Air Headquarters is in the advanced stage of the negotiations with the French team. The deal, for the first time is being negotiated between the two governmental teams and then will be followed between the Dassault and Indian Ministry of Defence for finalizing the nitty- gritty of the deal.
However, questions are being raised in defence circles on the rationale of buying only 36 aircrafts, as it would require a separate maintenance facility, which would not be economical. The Opposition Congress Party has already raised issues of non transparency in the deal and has also asked why the defence procurement procedure was bypassed in the absence of an intergovernmental agreement with France. Congress has said that under the MMRCA tender, the French company would have transferred the technology to India and it would have helped the Make In India program besides creating thousands of jobs in India. The previous defence minister A K Antony who oversaw the entire process of selection during his seven year tenure, raised the issue of non compliance of the procedures and ignoring issues like the life cycle cost of the fighter.
Also, since the Air Force is facing a shortage of ten squadrons according to sanctioned strength and many MiG squadrons would be retiring by the end of the decade, only two Squadrons of Rafale is certainly not going to meet the combat needs of the IAF. However, according to sources, the government is conscious of the needs of the IAF, and may allow through another route to the French Dassault to supply rest of the 126 aircraft tendered in the MMRCA contract. The Dassault is offering India to set up assembly and manufacturing facility in collaboration with Indian companies private or public. The Dassault has already entered into a joint production agreement with HAL, which has all the requisite infrastructure to make a fighter plane.
This facility will not only facilitate the Dassault to ramp up its production rate but will also help the company to meet the offset obligations as per Indian defence procurement procedure. This will augment the Merignac facility in France. Sources also said that the French company will also be able to meet the requirements to of other Arab countries from whom the Dassault has received orders. When the French Defence minister Jian-Yves Le Drian visited India in May, the two defence ministers have set broad parameters of the deal under which the contract would ultimately be signed.
Since Qatar and Egypt have ordered Rafale under the government to government contract, the French would like to present those models as template for Indian negotiation. It was reported earlier that French have sold 24 Rafale jets to Qatar in a total package deal of Euro 6.3 billion. If this is taken as a base price for Indian deal, then 36 aircrafts will cost around Euro 10 billion (around US$ 13 billion). According to reports India would be considering the cost at which the French Air Force has acquired those aircraft from Dassault. However, the French have revealed no data for the acquisition cost for the French Air Force. It is not known if the Qatar and Egyptian deal under government to government negotiation was held on the basis of the cost realized from the French Air Force by the Dassault.
Obviously it is going to be extremely tough bargaining from both sides as Indian public would ask for the rationale of buying such expensive aircraft, especially when there were other alternatives. Though the Defence Minister Manohar Parrikar has asserted that, “The signing of agreement for Rafale purchase was one of the bold decisions taken by the government. We signed the deal for better price, better than earlier”.
Earlier the IAF had rang alarm bells in front of the Standing Committee of the Parliament on defence saying that the fighter strength would be down to 26 from present strength of 34 against the required strength of 44 squadrons, as most of the ageing MiG series fighters are to begin retiring after 2017. The IAF had initiated stop gap measures to meet its combat capabilities by upgrading the MiG-21 to MiG 21-Bis, but these 108 odd refurbished aircrafts are also on the verge of losing their service life after life extension of a decade.
The MoD officials have indicated that the Rafale deal will be conducted on the pattern of FMS (Foreign Military Sales) of US administration, under which India has acquired the C-17 Globemaster, C-17 Super Hercules etc. That means that India will first ask for information from the French officials about the cost paid to the Dassault by the French Air Force. Probably this will become the bench mark for the negotiations. Since the Americans charge administrative cost, Indian MoD will also have to pay that amount extra, which according to sources is in the range of two-three percent.
Since the French Dassault has suddenly been flooded with new contracts for Rafale jet of 24 from Qatar and 24 from Egypt, they will be under great pressure to meet the demands of all the three simultaneously. Hence the Dassault is proposing to India if the order exceeds the 36 Rafale fighters, they would consider setting up a facility in India under a joint venture with Indian private sector or public sector firm. Since India is in the urgent need of giving more fighter squadrons to IAF, whose fighter strength is dwindling fast, the French are reported to be offering to replicate the entire Rafale plant in India to meet the IAF combat requirements.
The current production rate of Dassault in its Merignac facility is one per month and its current orders from three countries is around 84. The Dassault is also negotiating with other Gulf countries. Fruitful negotiations with them will depend only on the belief that the Dassault would be in a position to meet the demands of all the customers. Obviously none of the customers are going to wait for years, as they feel immediate requirement of the combat fleet with them.
Under the original MMRCA contract, the winning company was supposed to supply first 18 aircrafts in fly away condition and rest 108 was to have been manufactured in India. For this the agreement between Dassault and the HAL was already in place and everything agreed upon. But the Indian government took a U-turn and suspended the MMRCA negotiation and ordered directly for supply of 36 aircraft. Perhaps the Indian government could not have afforded to cancel the entire deal at one go, as France is India’s only reliable strategic partner among the western nations, which has sympathized with India during days of crises like the 1998 nuclear explosion when the entire western world had boycotted India.
Since the fighter strength of IAF has considerably gone down and would not again like to be caught napping as it happened during the Kargil war, the Modi government listened to the warning from the Standing Committee on Defence and as an interim measure decided to ask the French to supply initially 36 aircrafts to the IAF, but the question remains-from where the rest of the six squadrons would be acquired?