Nearly four months after Prime Minister Narendra Modi and French President Francois Hollande signed a memorandum of agreement (MoU) to purchase 36 Rafale combat jets, negotiating teams from either side have narrowed down their differences.
Sources with first-hand knowledge of the discussions reveal that the Indian team has managed to hammer down the price for the deal from some 11 billion Euros demanded by the French to about 7.89 billion Euros after three months of sustained and hard negotiations. The expectation is that the final deal will be clinched in another month’s time.
The deal comes with the clause of delivering 50 per cent offsets, creating business worth at least 3 billion Euros for smaller Indian companies and creating thousands of new jobs in India through the offsets. In fact, the toughest phase in the negotiations that began in July 2015—after three months Prime Minister Modi announced in Paris India’s plan to purchase 36 Rafale jets—was to get the French to agree to 50 per cent offsets in the deal.
Initially, Dassault Aviation was willing to agree to reinvest only 30 per cent of the value of its contract in Indian entities to meet the offset obligations, but India was insisting on a 50 per cent offset clause to be met. The French side finally agreed to invest 50 per cent of the value. The commercial negotiations, those involved in the negotiations point out, actually began on 15 January this year. Although both Modi and Hollande were keen to sign the complete deal during their summit meeting on 25 January—the negotiators bargain hard until 2 am on 25th January but failed to agree on a price—they both settled on a generic MoU in absence of a consensus.
Since then, both sides have had a series of discussions and sources now say price, offset and delivery schedule is more or less finalised. Once the final deal is sealed in middle of May—that is the outer deadline that both sides have set for themselves–the commercial negotiations can be said to have taken just five months after they actually began in January
Under the proposed deal, French companies apart from Dassault Aviation, will provide several aeronautics, electronics and micro-electronics technologies under the offset obligation. Companies like Safran and Thales will join Dassault in providing state-of-art technologies in stealth, radar, thrust vectoring for missiles and materials for electronics and micro-electronics.
The first delivery of the combat jets, manufactured by French aviation major Dassault Aviation, will however take at least 18 to 20 months from the date of signing of the contract. The Indian Air Force (IAF) desperately needs new fighter jets since its combat jet strength has depleted alarmingly in absence of any new induction. The 36 jets however will not be sufficient to make up for the shortage. Once the Rafale deal is concluded, the MoD and IAF is likely to concentrate on drawing up another plan to acquire another batch of fighter jets manufactured under the Make in India programme. This tender, whenever finalised, will allow other major aviation majors worldwide to compete in the Indian market for fighter jets.
Given that both Hollande and Modi have invested a great deal of their own political capital in re-configuring the original unwieldy tender, government sources insist that the contract will be signed sooner than later. Once that happens, it will bring down the curtains of one of the world’s longest running competition to sell fighter aircraft for any air force anywhere in the world.