Since the beginning of 2013, France has gone into an overdrive to charm the Indian political leadership to ensure the estimated $22 billion deal for 126 combat jets for Indian Air Force is in its defence major Dassault Aviation’s pocket.
First came French President Francois Hollande on a state visit in February this year and French Defence Minister Jean-Yves Le Drian followed it up six months later with a visit in July. Interestingly, Le Drian had accompanied Hollande to India in February too.
As can be expected, India’s defence and nuclear cooperation with France was the focus of Hollande’s talks with Prime Minister Manmohan Singh and combat jets deal was the centrepiece of discussion then. Le Drian, many had not known, took time to visit Defence Minister A. K. Antony and the Indian military top brass even though he was part of an official delegation of his president, and obviously “talked business”, an euphemism for Medium Multi Role Combat Aircraft (MMRCA) contract.
During his standalone visit in July, Le Drian made the MMRCA the focus of his entire three-day stay, when he lectured at the Institute for Defence Studies and Analyses (IDSA), apart from visiting a French Mirage-2000 combat plane squadron of the Indian Air Force (IAF) at Gwalior.
Despite all these efforts, all indications from the Indian defence establishment is that the contract, for which Dassault Aviation was chosen the winner in January 2012, may not happen during the tenure of the incumbent UPA-II government.
The current ruling coalition has virtually lost the window of opportunity to sign the deal in the last three months. Considering that elections are less than eight months away, it can be safely concluded that the MMRCA contract cannot be signed during this fiscal, which will end in March 2014, as it would be near impossible to rush through negotiations during the short period before December 2013 after which election fever will grip the Indian political space.
Le Drian himself gave the clear-cut signal that the contract is far off from being signed anytime soon. During his lecture at India’s think tank, IDSA in New Delhi, India’s official defence think tank, the French minister said: “Of course, the MMRCA project is the priority. At the risk of disappointing you, I will not be announcing the date of signing the contract.”
The French desperation is there for all to see. The French Air Force has already decided to cut its orders for the Rafale jets to just 26 over the next six years instead of the previous order of at least 11 planes annually. The French Air Force had originally envisaged having at least 320 Rafale in its fleet, but now that number has come down to just 225 planes.
As a result, Dassault Aviation’s production lines for Rafale is under a serious threat if the Indian contract does not come through quickly and the company’s finances are in serious trouble.
To assure India that fiscally troubled Dassault Aviation is able to complete the contract obligations in full, the French government will now provide guarantees through an agreement with the Indian government in the MMRCA contract. “This new agreement needs to be negotiated and hence the deal could be further delayed,” said a senior Indian defence ministry official.
The official reason that the Indian defence ministry has been doling out is that the contract negotiation, which began sometime in March 2012, is a “tedious, lengthy and complex” process, considering that France would be manufacturing only the first 18 of the Rafale twin-engine combat planes that would be delivered off-the-shelf in a flyaway condition. The rest 108 are to be manufactured by the Indian defence public sector giant Hindustan Aeronautics Limited (HAL) under licence from Dassault Aviation.
Hence, there will be a tri-partite major contract among the IAF, Dassault Aviation and HAL initially. But the complexity in the contract process grows manifold when licence manufacturing comes into the picture. There are several hundred enterprises in France that manufacturer spares and sub-assemblies for building the Rafale planes. A more or less similar number of small and medium enterprises in India, too, produce spares and sub-assemblies for HAL. The sub-contracts and licencing for those sub-assemblies and spares among these small and medium enterprises from both sides are to be negotiated and signed. Here is where the final contract conclusion is taking time.
That apart, the contract signing is delayed over issues arising out of the offset provisions, under which Dassault Aviation will plough back 50 per cent of the deal amount in the Indian defence sector, through either direct purchases or providing technological know-how.
“These are complicated processes and the proposals for offset and technology transfer have to be gone over through a fine tooth comb,” a Defence Ministry official said.
Another important factor that is hampering the MMRCA contract is the poor performance of the Indian economy and the apparent impact it has on budgetary allocations.
The government has already approved a budgetary allocation of $11 billion for the MMRCA contract under the Acceptance of Necessity (AoN) that was accorded in 2006 to the IAF requirement to buy the 126 combat jets, ahead of the tender being issued in August 2007. But clearly this amount is definitely not enough, as the seven years of tendering and contract negotiations has already resulted in cost overrun of the combat jets.
As stated earlier, it is estimated that the cost of the MMRCA contract is likely to double and hence a fresh AoN would have to be obtained after the contract negotiation and cost of the 126 jets is finalised. Moreover, the tender document has stipulated that India will pay 15 per cent of the deal amount to the winning company as down payment on signing of the contract. It may take more than monetary prudence on the part of the government to find that 15 per cent of the contact cost, which could easily go upward of $3 billion.
With the Indian rupee doing badly against the US dollar (albeit it has shown an upward swing following the US Fed’s decision to continue stimulus), India would prefer to wait for its currency to do better some months or a year from now, when the new government is also in place, before they sign the MMRCA deal.
Already the MMRCA contract negotiation between India and France has had a six-month setback in the middle of 2012, soon after the talks on the cost of the contract had begun. On a complaint from then Telugu Desam Party Member of Parliament M V Mysura Reddy that the defence procurement procedure had been deviated from in the selection of Rafale as the winner, Antony ordered a probe and after a six-month investigation by a team of officials from the Defence Ministry, the all clear for the contract negotiation to proceed was provided sometime in October 2012.
But it is not just political pressures that have come into play in the hotly contested tender. Dassault Aviation’s main competitor for the deal, European consortium EADS Cassidian, was hopeful of the contract negotiation between India and France falling through and its Eurofighter Typhoon bagging the deal as the second lowest bidder.
Of the total six companies in competition, India had down selected Dassault Aviation and Cassidian to compete in the final round of the contest beginning April 2011.
With Britain’s BAE Systems being a major investor in Cassidian, British Prime Minister David Cameron, who came to India to meet Prime Minister Manmohan Singh soon after Hollande came and left in February this year, too pitched for Eurofighter Typhoon as a possible solution to the IAF’s combat jets requirement.
Though the Russian United Aircraft Corporation (UAC) lost out in the race early on, Moscow has not yet lost hope. It had pitched its MiG-35 as a possible platform for the IAF’s MMRCA requirement. Considering that Russia likes to keep talking about how they are the only true strategic partners of India, they keep their hopes alive for a possible government-to-government contract to supply more Sukhoi Su-30MKI to India as a backup plan in case the Rafale deal is delayed further.
Not to be left behind, the Americans, who had pitched their Boeing F/A-18 and Lockheed Martin F-16 in the MMRCA race, have time and again offered their fifth generation F-35 to India in a possible foreign military sales route, which is basically a bid to bypass the tendering route. The only other contender, who had gone silent after being eliminated from the tender, is the Swedish SAAB, which had offered it Gripen combat plane.
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