Rafale Jet Deal Put On the Back Burner

French Defence Minister Jean-Yves Le Drian came to Delhi, charmed his counterpart A K Antony, but could not conquer.

After three days in India, when he held formal talks with the Indian defence ministry top brass and also lectured the Indian military think-tank IDSA, Le Drian returned home Saturday empty-handed, without even the Rs 1 lakh crore combat jets deal for which French Rafale was chosen as the lowest bidder in January 2012.

Apart from pitching for broader defence ties, Le Drian had to admit he faced the risk of disappointing the discerning strategic thinkers and defence watchers in India and France on the “priority” Medium Multi Role Combat Aircraft (MMRCA) contract.

“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,” Le Drian said at IDSA.

The bottom line is: The “most important defence deal in history” to supply Rafale for the Indian Air Force (IAF) may not happen in the near future or during the 2013-14 fiscal, or even during the tenure of the present UPA II government that ends next May.

There were enough signals in this regard during Le Drian’s stay in the Indian capital and during his and his officials’ interaction with the media and the intelligentsia. Le Drian, however, exuded confidence that the contract itself, which was bagged by French firm Dassault Aviation, was not in trouble over the poor financial state of the company.

Dassault Aviation’s Rafale plane had won the stiffly fought four-and-a-half-year contest against European consortium EADS Cassidian’s Eurofighter Typhoon, American major Boeing’s F/A-18 and Lockheed Martin’s F-16, Russian United Aircraft Corporation’s MiG-35 and Swedish Saab’s Gripen.

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.

Asked if the French were confident of signing the deal before the next Lok Sabha elections scheduled in April-May next year, a source close to the French defence minister virtually confirmed the fears that this may not be possible, saying: “There was never any deadline for signing of this contract. Negotiations are progressing well. Once these are completed, the contract will be signed.”

The source also noted that the acquisition process for the MMRCA was “complicated” due to “numerous negotiations” for sub-contracts with a large number of Indian Small and Medium Scale Enterprises that are suppliers to the Indian public sector Hindustan Aeronautics Limited, the primary licenced production agency for the Rafale planes.

The Indian SMEs will be manufacturing and supplying the parts and sub-parts required by HAL to assemble the Rafale at its facility in India. Dassault Aviation will supply the first 18 Rafales from its production facility in France, but HAL will be licence-building the rest 108 Rafales of the 126-plane order at its facility here in India.

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 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 averred.

Since the January 2012 selection of Dassault Aviation as the lowest bidder in the August 2007 MMRCA tender, already 18 months have lapsed. With the UPA II government heading towards a General Election, the window of opportunity for signing of the contract within the tenure of the Manmohan Singh administration may end by December 2013.

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