It began with the idea of buying 126 fighter jets, for which the
French Rafale was chosen in 2012. Negotiations broke down sometime in
2014. Then there was no news about the jets till April 2015 when Modi,
during his trip to France, surprised everyone by announcing a much
smaller, 36 fighter jet deal.
But after years of talking to the
French, there's still no clarity about what this new deal will
eventually cost India. That's why there's little excitement about the
Inter Governmental Agreement (IGA) over the Rafale deal that the two
countries signed on Monday.
From
being 'the mother of all defence deals', the Rafale jet deal has come
to us, as an expert recently put it, 'like an unplanned child.'
If
the latest development on the Rafale jet business means something, it
means a minor victory for the French. Because the Indians have now
conceded a hand to the French in price negotiations, by committing
itself to buying the Rafale jets.
This seems to be what France
wanted for the time being. It was reportedly looking to conclude the
deal and make a joint statement during President Hollande's India visit.
The deal is quite important for French economy. And from the point of
view of India, whose Air Force dominance in the subcontinent is
depleting rapidly due to its ageing fighter squadrons, getting the
state-of-the-art fighter jets is critical.
Here we take a look at
how the cost of French fighter jets have spiralled upwards and try to
understand why India needs to clinch this deal quickly.
To begin with, why does India needs these fighter jets?
Indian
Air Force (IAF) has been interested in buying the Medium Multi-Role
Combat Aircraft (MMRCA) since 2001. It was because IAF could anticipate
how obsolete some of its fire-power would become within a couple of
decades, which is what it's suffering now.
The Air Force, which
has a projected requirement of 44 squadrons, currently operates with 32
squadrons. Of these there are 14 squadrons of out-of-date MiG-21s and
MiG-27s, which have to be retired from 2017 onward. Some of the other
squadrons of Mirage-2000s and Jaguars are also in process of being
upgraded.
At the same time India's neighbours have been working
to modernise their air forces. China, which cannot collaborate with
Western countries in defence because of arms restrictions on it, has
been working with the Russians to develop advanced fighter jets. JF-17s
are a result of this and more projects are in the pipeline.
Pakistan, on the other side, is updating its air force with the help
of the Americans. The sale of F-16s, which was temporarily halted, has
reportedly been resumed again.
With 36 Rafales, the Indian Air
Force is looking at setting up two squadrons of the best available
fighter jets immediately to maintain its aerial superiority in the
subcontinent.
So why isn't India buying these jets?
While
all other matters have been settled, the two countries have basically
not made much progress on financial negotiations for the past one and a
half years. This is also because the positions from which the two
countries began negotiating
India was in a commanding position in
2012 when it was ready to offer $12 billion in exchange for 126
advanced fighter jets. All the world's biggest fighter jets, from the
Americans with their F/A-18 Super Hornets, the Russians with MiG-35s,
the British with Eurofighter Typhoons, to the Swedes with Saab's
Grippens, had lined up for this incredible contract.
At that time
India was dictating terms to the French, for whom this contract would
mean employment guarantee for 7000 employees and 500 subcontractors of
Dassault Aviation, the manufacturer of Rafales, which was going through a
dry patch then.
To speed up acquisition of the hardware it was agreed that this contract would directly be between the two countries.
However
talks between the two countries on 126 aircraft deal broke down as the
total cost escalated up to $22 billion. India subsequently placed a new
order for 36 Rafales in ready-to-fly condition.
While India to
press for better bargains, Egypt and Qatar placed orders of 24 Rafales
allowing the French to breathe easy and giving them some confidence
while negotiating with India.
Initially the order of 36 jets was expected to cost India $4 billion.
But the costs have since, as several media portals have reported,
almost doubled.
Latest estimates put the worth of the jets at $9
billion, or Rs 60,000 crore. And it's not just about the cost of the
aircraft. India and France are also negotiating the offsets in this
deal.
What are offsets?
Offset agreements, followed in
defence contracts around the world, are basically conditions put on the
seller of a technology to buy products or services from a client. The
common practice is to ask the seller to invest a certain amount of the
project, back in the buyer's market.
For instance, it is like
asking the French to invest a certain percentage of the Rafale deal
contract back in India, under Modi's Make in India initiative, which is
actually what is happening. In India any defence contract over Rs 300
crore entails an offset cost of 30%. In bigger deals offset is also
increased to 50%.
So far the French were arguing hard against bearing offset costs
since they're selling Rafales to India at the same cost at which the
French air force buys them. However, France's finance minister, Michel
Sapin, on Monday pledged to invest $10 billion in India in the coming
years. This is good news and may settle the offset debate for good.
Finally, are 36 fighter aircraft enough for the IAF?
No.
With their initial order of 126 fighter jets, India was looking to set
up 6 squadrons of the best fighter aircraft in the world. But since that
order seems to have died a natural death, India would be looking to
immediately strengthen its numbers by setting up 2 squadrons.
And
possibly inducting more Rafales by either setting up a facility in
India or aiding the transfer of technology from Dassault to Hindustan
Aeronautics Limited (HAL).
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