Rafale not a done deal, yet

The lack of clarity in price finalisation of Rafale between India and France indicates that both sides may have to make some compromises 

It was with much fanfare that concluding of much spoken about Rafale deal between India and France was announced on January 26, 2015. The first announcement of this deal was done during Modi’s visit to France in April 2015. It was reported then that 36 aircraft will be sold to India in a ‘fly away’ condition. This came as a very pleasant surprise for the Indian Air Force as the deal had been stuck for a long time in spite of critical operational necessity. Modi in his address stated that India and France had concluded the Inter Governmental Agreement (IGA) pending some financial issues. Later it was clarified by the foreign secretary S.Jaishankar that it was a Memorandum of Understanding(MoU). The French President Francois Hollande has been quoted saying that the financial issues could be resolved in a “couple of days”. Legally speaking, a MoU cannot be contested in a court of law. It differs from an agreement which is enforceable. The devil lies in the details.

There have been two sticking points in the deal. First, India wanted a 50 per cent offset in the deal for its ‘Make in India’ programme whereas France was willing only for 30 percent. After much wrangling, the French have agreed to the offset clause. Second, it is the cost of the aircraft which is seemingly getting intractable between the two parties. The logic of price as seen from seller’s angle is simple to understand. Lesser the quantity, higher the price. Officials involved in the negotiation say that the cost per aircraft demanded by the manufacturer Dassault is € 100 million or approximately Rs. 740 crore. This makes the total cost about $ 11 billion. It is reported that India wants to bring it down to $ 7 billion, almost 35 per cent less. Anyone who has been involved in negotiations knows that the financial aspects are the hardest to resolve.

The Multi Role Combat Aircraft (MRCA) has been one of the longest running negotiations in the history of arms  deals in India. The Indian Air Force stated its requirement for MRCA in 2001. Rafale pipped its closest competitor in this race, the Eurofighter because of its life cycle costs. Rafale increased its price primarily because of the considerably less numbers from the initial projected figure of 126 aircraft. Much political capital has been invested between Modi and Hollande. It is only prudent that the deal is concluded quickly in the national interest. Even after signing of the agreement, it may be only by the end of 2016 or early 2017 that IAF gets the deliveries as the fighter will have to be customised to Indian conditions. We are not quite there, yet.

 

Guru Aiyar is research scholar in Takshashila Institution and tweets @guruaiyar

Featured Image: Rafale by Airwolfhound, licensed from creative commons.org

 

 

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2 Responses to Rafale not a done deal, yet

  1. Raghvendra January 27, 2016 at 11:22 am #

    We must understand that MMRCA was the first contract wherein the L1 was to be decided on the basis of life time cost of the products rather than individual cost (as done commonly earlier). Further, linked to this is the minimum operational availability of the aircraft which India required . Now if you factor both and combine it with the offset and the huge value of the deal ( thus proportionally high pressure from companies / govts involved) ; it is not a simple deal.
    We need to have patience and understand that delay is a sign that Indians are driving a hard bargain for its advantage. Else earlier Russian deals were always faster and we kept importing. Some time patience pays .

  2. Guru Aiyar February 2, 2016 at 3:22 pm #

    One good thing has been letting go of the Russian straitjacket. But still Rs 740 Cr per aircraft is a huge cost. Was there undue haste shown in announcing the deal? It seems to have huge optics factor attached. Now with so much of political capital invested by India and France, there is very little room left for manoeuvre to bring the price down.

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