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How India got the Rafale at a lower price

By Nitin Gokhale
September 21, 2016 21:55 IST
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As the Cabinet approves the purchase of 36 Rafale fighter jets, Nitin Gokhale/ reveals how India brought down the price of the Rafale deal.

If India has not bought a single piece of artillery for over 28 years, the story is as dismal for the fleet of combat jets.

No new fighter planes have been procured by the Indian Air Force since the beginning of this century.

That long wait for a new fighter plane to replace the ageing MiG-21s and beef up the depleting combat fleet is about to get over on Friday, September 23, with India and France set to sign a 7.878 billion euros (Rs 59,630 crore) contract with Dassault Aviation to supply 36 Rafale jet fighters.

While all 36 planes will be delivered to India in 66 months, the first Rafale fighter jet will be received within three years of signing the agreement, sources in the negotiating team told

These fighter jets will have at least a dozen India-specific enhancements to suit the IAF's requirements. The contract will also include state-of-the-art missiles like the Meteor and the Scalp that will give the IAF a capability that had been sorely missing in its arsenal.

The Meteor, for instance, is a BVR (Beyond Visual Range) air-to-air missile with a range in excess of 150 km. Its integration on the Rafale jets will mean the IAF can hit targets inside both Pakistan and Tibet while staying within India's territorial boundary.

The Scalp, a long-range air-to-ground cruise missile with a range in excess of 300 km, also gives the IAF an edge over its adversaries.

The weapons platform apart, the ministry of defence-Indian Air Force negotiating team extracted many concessions and discounts to arrive at a price that is almost 750 million euros (Rs 56,000 crore) less than what was being quoted by the French side in January 2016, when the commercial negotiations gathered pace.

This came almost seven months after Prime Minister Narendra Modi announced India's intention to buy 36 Rafales off the shelf from France during his trip to Paris in April 2015.

In January this year, a day before French President Francois Hollande and Prime Minister Modi were to jointly issue a statement during the French leader's visit to India, the French side quoted a price of 8.6 billion euros.

Not willing to accept what was seen as a high price, the Indian team refused to close the deal, forcing the two leaders to issue a statement which talked about finalising the deal without the price.

To bring down the cost, the Indian team asked French officials to calculate the deal on actual cost (price as on today) plus European Inflation Indices (which varies like stock markets and is currently around 1 per cent per annum).

The defence ministry also capped the European Inflation Indices to maximum 3.5 per cent a year. In other words, if inflation indices goes down (chances of it going down are more, looking at the current situation of the European markets) India will have to pay less.

Even if it goes up India will not pay more than a 3.5 per cent increase.

In the now scrapped process for buying 126 Medium Multi-role Combat Aircraft floated, confusion reigned supreme in calculating the cost of the contract. After Dassault Aviation -- makers of the Rafale -- emerged winners, the United Progressive Alliance government agreed with French officials to calculate the price on the fixed cost formula that allowed the company to include an additional price of 3.9 per cent Inflation Indices from day 1 of the deal.

Had India gone ahead with the deal and the European Inflation Indices had fallen (as it indeed has), India would have ended up paying an additional cost of inflation Indices (at 3.9 per cent) 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 the first batch of 18 planes were to be manufactured in France and 108 were to be manufactured in India. However, when negotiations for the cost of 108 fighters began, it was discovered that the cost would go up substantially (in fact to the tune of Rs 150 crore per plane) since the cost of labour man hours in India were 2.7 times higher than in France.

Moreover, then defence minister A K Antony had remarked on a file that the negotiating team must come back to him before finalising the contract, creating more confusion for the negotiators. Clearly, with these factors, the fact that the French company emerged as the lowest bidder in itself had come under a cloud.

The current defence ministry team extracted several other discounts. 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.

A comparative analysis will show that only about 60 per cent of India's frontline fighters, the Sukhoi-30 fleet, remains operational at any given time in the current scenario.

Till three years ago, only about 48 per cent of the Sukhoi fleet was able to fly at any given time, because of poor maintenance.

Called the Performance-based Logistics Support, this clause can be extended by the user (the IAF) at the same cost as today for another two years with an option that the same terms can be applied for an additional five years at an additional cost that is negotiable.

Three other minor but important concessions include free training for nine IAF personnel, including three pilots; 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). The three concessions alone would make substantial saving for India, sources pointed out.

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