India and France are set to sign the deal for 36 Rafale fighter aircraft on the eve of French President François Hollande’s visit to India for the Republic Day celebrations. The draft contract, which envisages supply of the first fighter within 36 months of signing the deal, has been finalised.
The supply of full complement of 36 fighters to the Indian Air Force (IAF) will be completed within seven years of signing the deal.
The induction of the 36 fighters will add to the IAF squadron strength which is now down to 34. At least 44 fighter squadrons are needed to be comfortable against China and Pakistan.
The proposal for buying 36 Rafale fighters from France in a government-to-government deal was announced during Prime Minister Narendra Modi’s visit to Paris in April.
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It followed a long-drawn tender for acquisition of 126 medium multi-role combat aircraft (MMRCA) for the IAF in which the Rafale had been selected as the L-1 or lowest bidder after a decade of evaluation, testing and negotiations. Mired in controversies over pricing and transfer of technology, the process was scrapped by Defence Minister Manohar Parrikar earlier this year.
Industry sources said the price of a Rafale fighter in the current deal has been fixed at the 2007 base rate plus an escalation formula agreed upon by both sides. As per commercial bids received for 126 fighters, plus an increment of 5.5-7.5 per cent per year applied on different sub-systems, items and services as per the escalation formula, the final price for the 36 fighters is expected to be around $8.3 bn.
The draft agreement states that all 36 fighters will be supplied by Dassault Aviation in a fly-away condition. To avoid any complications, the two sides agreed for the same SOP (standard of preparation or technical specifications) for the Rafale fighters as agreed upon in the tender for 126 aircraft.
Sources said Dassault was keen to include improvements in the SOP, with limited change in pricing, but the Indian side did not want to introduce new elements in the negotiations.
Defence ministry sources told The Indian Express that the clause for 50 per cent offsets, as mandated in the 126 aircraft proposal, shall be applicable to the current deal.
According to industry sources, the offsets commitment will now be fulfilled through a private vendor. This is a major difference from the earlier deal, where public-sector Hindustan Aeronautics Limited (HAL) was to make 108 fighters in India.
Anil Ambani-owned Reliance Defence Limited (RDL) is said to be the leading contender for discharging the offsets for the 36 fighter deal.
Defence ministry sources say that Dassault and RDL have to fulfil the offset commitment.
Confirming it is constructing a greenfield aerospace facility in Nagpur which will start production in FY 2016-17, RDL said it has not entered into an agreement with Dassault Aviation so far.