Sticker shock or pretty bargain?

India concluded the Inter-Governmental Agreement to purchase 36 Rafale fighters from French aviation major Dassault more than a year after Prime Minister Narendra Modi made the announcement during his visit to France in 2015. Though the deal has been dressed up as bargain, India had to overcome serious sticker shock to bring itself to place the order, reported to cost 7.87 billion euros ($8.8 billion or Rs 59,000 crore).

Media reports indicated that the government had hunted down a discount over negotiations with the French. Is it the “final best offer” that it is being made out to be? The order came under criticism with many analysts pointing out that it was hardly a bargain, given the cost per aircraft to India – Rs 1,600 crore – if it were compared to the Medium Multi-Role Combat Aircraft (MMRCA) tender.

This comparison is both valid and flawed. There is no question that the estimated cost for the MMRCA was lower, but that is also, in part, due to a flaw in India’s Defence Procurement Procedure which does not lay down a fixed budget for such a purchase. In theory, one could pick up the shiniest toy without regard to how much it would cost the taxpayer. The cost factor dawns on the government when the aircraft has already been selected. This may be a key reason why the Modi government decided to go around the tender process and initiate a government-to-government deal. The experience of other such orders, like for the acquisition of the C-130J and C-17 aircraft from the US, may have guided them to this decision.

The government said the new deal would offer better terms when compared with the ongoing process undertaken by the defence ministry to buy 126 MMRCA for the Indian Air Force (IAF). The tender was issued in 2007; Dassault’s Rafale emerged as the shortlisted candidate in 2012 and the tender was cancelled in 2015 after three years of protracted negotiations. At the `Acceptance of Necessity’ level, the 126 MMRCA deal was estimated to cost India Rs 42,000 crore or $10.4 billion in those days. A crucial part of the exercise was the transfer of technology and licensed production in India, which, paired with offsets, India hoped would jump-start an aviation industry. But that didn’t happen.

Naturally, the government would like us to believe the terms for the order for the 36 Rafale aircraft are better than the terms and conditions that were offered in the MMRCA tender. The average base price for each jet is understood to be 91.7 million euros (about Rs 686 crore), but the figure shoots up to nearly Rs 1,640 crore for every jet when the cost of the weapon package, supplies and logistics are added.

Weapons package

A large portion of the money is meant for India-specific enhancements and the weapons package, which include Meteor air-to-air BVR missile with more than 100 km range. But again, several crucial details have been kept under the wraps. The new order is different from the previous deal. A smaller purchase – it envisaged no licensed production in India – would have been a costly and   time-consuming requirement for Dassault. Observers feel the company did not have the resources to go ahead with a new assembly line in India even in a partnership.

According to the French Senate review of their defence budget, each Rafale cost the French Air Force 152.3 million euros or $167 million in 2011. Even with inflation, the 126 MMRCA deal was estimated to have cost India around $20 billion, a much lower acquisition cost, given the numbers. By this reasoning, the unit price of each aircraft would have been around $158 million. At this rate, 36 aircraft would have cost $5.6 billion, but the acquisition costs for the Rafale aircraft ordered recently by Egypt and Qatar are not very different to what India has agreed to pay.

It is also undeniable that two of the most important objectives of the MMRCA remain unfulfilled with this order for 36 Rafales: making up the numbers for the IAF fighter fleet and setting up a domestic aviation industry. Air Chief Air Chief Marshal Arup Raha called the Rafale a wonderful aircraft but said the IAF needed more fighter jets. This is why the government is currently considering a separate Make in India plan for another line of fighter aircraft.

Did strategic considerations come into play? One of the roles of the IAF Mirage 2000 aircraft is that of a nuclear weapons delivery platform and by 2030, a successor will be required. So a combination of factors such as the IAF’s urgent necessity, the strategic nature of the platform and the pressure of anticipation may have pushed the deal to conclusion. Is there any need to call it a bargain, particularly when the comparative prices under different heads are unknown?

(The writer is the editor of defence news website www.stratpost.com)