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Rediff.com  » News » Revealed: $4 bn is holding up the Rafale deal

Revealed: $4 bn is holding up the Rafale deal

Last updated on: January 26, 2016 08:31 IST

Nitin Gokhale, founder, BharatShakti.in, reveals what is holding up the Rafale deal.

The Rafale

IMAGE: India won't pay more than $7 billion for 36 Rafale aircraft. The French want $11 billion.

 

Major differences over price has held up the much anticipated contract worth at least more than $7 billion that India was to sign with French aviation major Dassault to buy 36 Rafale multi-role combat jets for the Indian Air Force, even as visiting French President Francois Hollande and Prime Minister Narendra Modi both said their governments had signed an inter-government agreement in New Delhi on Monday, January 25.

Indian government sources now indicate that it will take at least another month plus to hammer out a consensus between the two sides on how much each plane should cost.

Prime Minister Modi had announced in Paris last year that his government was scaling down the contract from the originally planned purchase of 126 fighter jets to a modest 36 planes.

Since then the two sides have been consistently trying to hammer out a solution to many contentious issues left behind by the original deal.

One of the initial hurdles was on the quantum of offsets.

While France was willing to agree to reinvest 30 per cent of the value of its contract in Indian entities to meet the offset obligations, India insisted on a 50 per cent offset clause to be met.

The French side finally agreed to invest 50 per cent of the value of its Rafale contract in India to boost the Make in India programme.

Two other tricky issues, however, needed to be sorted out before the actual contract document was ready to be signed.

One, India wanted a sovereign guarantee from the French government as collateral. Paris was, however, reportedly willing to give only a letter of guarantee from President Hollande.

After initial hesitation, New Delhi has apparently agreed to accept this as a concession since the letter is being treated as part of the Inter-Government Agreement signed on Monday.

The second and most important aspect -- that of the actual cost of the aircraft, including weapons systems and avionics -- is, however, proving to be the most difficult to resolve.

While the French have been insisting that the cost of the aircraft will invariably be higher given the lower numbers that India is willing to buy now, New Delhi insists that it must get a competitive price given the fact that it did not walk out of the original tender when it could easily have done so.

While no one is officially willing to give the exact figure each side is firm on, BharatShakti.in has learnt that India is firm on not paying more than around $7 billion for the 36 aircraft, the French are quoting a much higher figure of about $11 billion.

Given the wide gap in the figures, both sides may have to walk halfway to meet each other to resolve the issue and take the contract on the threshold of its final signing in the next few weeks.

Both Hollande and Modi have invested a great deal of their own political capital in re-configuring the original unwieldy tender, and government sources insist that the contract will be signed sooner than later.

Once that happens, it will bring the curtain down on one of the world's longest running competitions to sell fighter aircraft for any air force anywhere in the world.

Nitin Gokhale