Four months since the announcement by Prime Minister Narendra Modi of direct purchase of 36 Rafale fighters from France citing “critical operational necessity” of the Air Force, price negotiations are stuck again due to differences over cost and offset requirements.
Official sources said negotiations between two sides have been held up over the issue of offsets which also drove up the cost. As per the Defence Procurement Procedure, offset applies to all deals worth over Rs.300 crore under which companies have to invest 30 per cent of the value of the contract back in the country.
This is reminiscent of the original Medium Multi-Role Combat Aircraft (MMRCA) contest for 126 fighter jets under which Rafale was shortlisted. The negotiations were stuck for three years as the cost shot up to over $20 billion from $10 billion and on issues of technology transfer which eventually forced Mr. Modi to announce a government-to-government deal to cut time and cost.
The Defence Ministry has made it clear that offsets apply to the deal which is 50 per cent for the MMRCA deal. This is driving up the cost per aircraft as was reported by The Hindu last week. The Air Force has also sought some changes in the configuration which also add to the cost and time overruns.
The cost per aircraft was expected to be at a similar level to that on offer to the French Air Force. Officials said France has expressed reservations over the offset requirements and indicated a cost escalation.
Given the logjam, Mr. Modi may have to step in once again to clear the hurdle.
