India, France Ink Deal Worth $8.9 Billion For 36 Rafale Fighter Jets

Indian Air Force gets cutting edge capability over arch-rivals Pakistan via Rafale deal

Defence Minister Manohar Parrikar and his French counterpart Jean Yves Le Drian shake hands after signing the Euro 7.87-billion (Rs 59,000 crore approx) Rafale fighter jets deal, at South Block in New Delhi on Friday (Source: PTI)
Defence Minister Manohar Parrikar and his French counterpart Jean Yves Le Drian shake hands after signing the Euro 7.87-billion (Rs 59,000 crore approx) Rafale fighter jets deal, at South Block in New Delhi on Friday (Source: PTI)

India and France today signed the €7.87-billion ($8.9 billion) deal for Rafale fighter jets, equipped with latest missiles and weapon system besides multiple India-specific modifications that will give the IAF cutting edge capability over arch rival Pakistan.

The deal was signed by Defence Minister Manohar Parrikar and his visiting French counterpart Jean Yves Le Drian sixteen months after Prime Minister Narendra Modi announced India’s plans to buy 36 Rafale fighter aircraft in fly away condition during his trip to France.

The deal comes with a saving of nearly €750 million, gained through hard negotiations by the Indian side, over the one struck during the previous UPA government, which was scrapped by the Narendra Modi government, besides a 50 percent offset clause.

The 50 percent offset clause means that Indian businesses, both big and small, will gain work to the tune of over three billion Euros.

These combat aircraft, delivery of which will start in 36 months and will be completed in 66 months from the date the contract is inked, comes equipped with state-of-the-art missiles like ‘Meteor’ and ‘Scalp’ that will give IAF a capability that had been sorely missing in its arsenal.

The features that make the Rafale a strategic weapon in the hands of IAF include its Beyond Visual Range (BVR) Meteor air-to-air missile with a range in excess of 150 km.

Its integration on the Rafale jets will mean IAF can hit targets inside both Pakistan and across the northern and eastern borders while staying within India’s territorial boundary. Pakistan at present has only a BVR with 80 km range.

During the Kargil war, India had used a BVR of 50 km range while Pakistan had none. However, Pakistan later acquired 80-km-range BVR, but now with ‘Meteor’, the balance of power in the air space has again tilted in India’s favour.

‘Scalp’, a long-range air-to-ground cruise missile with a range in excess of 300 km, also gives IAF an edge over its adversaries. Sources said the ‘vanilla price’ of just the 36 aircraft is about €3.42 billion. The armaments cost about €710 million while Indian specific changes, including integration of Israeli helmet-mounted displays, will cost €1,700 million.

Associate supplies for the 36 fighter jets will cost about €1,800 million while performance-based logistics will cost about €353 million.

The tough negotiations by the MoD-IAF team extracted many concessions and discounts from the French before arriving at a price that is almost 750 million Euros less than what was being quoted by the French side in January 2016.

This was when the commercial negotiations gathered pace. The French side had quoted a price of 8.6 billion Euros in January following which India refused to sign the contract. This forced both the countries to just sign an MoU in January, when French President Francois Hollande came, announcing their intention to sign an IGA.

To bring down the cost, the Indian side asked French officials to calculate the deal on actual cost (Price as on today) plus European Inflation Indices. The Defence Ministry has capped the European Inflation Indices to maximum 3.5 percent a year. In other words, if inflation Indices goes down, India will have to pay less. Even if it goes up India will not pay more than 3.5 percent increase, sources said.

After Dassault Aviation, makers of the Rafales, emerged as winners, the UPA government had agreed with French officials to calculate the price on the fixed cost formula that allowed the company to include additional price of 3.9 percent inflation indices from day 1 of the deal.

So, had the deal gone ahead, India would have ended up paying additional cost of inflation Indices (3.9 percent) which was already added at the initial negotiation itself. Moreover, there was confusion on the calculation of the basic price itself. In the original MMRCA proposal, 18 planes were to be manufactured in France and 108 in India in collaboration with the HAL.

It was later discovered that the cost of 108 fighters would go up by about Rs 150 crore per plane since the labour man hours in India were 2.7 times higher than in France, raising questions about the French firm being the lowest bidder.

Interestingly, the then Defence Minister AK Antony had put down on file a remark that the negotiating team must come back to him before finalising the contract, creating more confusion for the negotiators. However, the new deal comes with several discounts, sources said.

For instance, Dassault will have to ensure that at least 75 per cent of the entire fleet remains operational at any given time. This warranty is signed for the first five years.

Despite several steps taken by the Defence Ministry over the last three years, 60 percent of India’s frontline fighters, the Sukhoi-30 fleet, remains operational at any given time, up from the dismal 48 per cent earlier, sources said.

Three other concessions include free training for nine IAF personnel, including three pilots besides additional guarantee for 60 hours of usage of training aircraft for Indian pilots and six months of free weapons storage without charge (in case the Indian infrastructure is not ready for storing the weapons).