India and France have resumed their government-to-government negotiations on the 36 Rafale fighter aircraft deal today. The contract negotiation committee (CNC) of the defence ministry, headed by the Deputy Chief of Air Staff of the Indian Air Force (IAF) is meeting the French team, headed by a senior French government official and aided by a team from Dassault Aviation.
This is the second meeting between the two sides since India and France signed an Inter Government Agreement (IGA) during the visit of the French President Francois Hollande for the Republic Day. After the signing of the IGA, Hollande had explained that the deal could not be finalised as the two sides were still negotiating the final price for 36 fighters. Dassault Aviation had then issued a statement hoping that the negotiations would conclude within four weeks.
“We don’t expect the negotiations to continue for a year. It is not a never-ending process but there is no deadline. We have to get the best deal. Everything else has been agreed upon by both sides, we are in the final stretch of financial negotiations,” explained a top defence ministry official.
According to sources, the two sides are bargaining hard over the price of the French fighters, primarily due to the base price fixation, over which the annual inflation factor will be added. The French want the base price to be the 2007 bid price for 126 Rafale fighters while the Indians maintain that price is high.
The current deal of 36 fighters will have all of them being flown in a fly-away condition from France while there was a 50 per cent offset component in the old deal, which mandated that 108 of those fighters were to be made in India by HAL. The price of fly-away aircraft, Indian side argues, has to be lesser than the fighters made by HAL.
The Indians are willing to pay around 7 billion USD for the 36 fighters while the French company is believed to be asking for one billion USD more. The deal includes air-to-air and air-to-ground missiles, bombs, training of pilots, and preparation of IAF base facilities for the aircraft.
The Indian Express had earlier reported that France’s offer to provide a ‘comfort letter’ instead of a sovereign bank guarantee for the deal has been rejected by the law ministry. If the ‘comfort letter’ is unacceptable, a sovereign guarantee will actually reduce Dassault’s cost. A bank guarantee would cost Dassault Aviation 3-4 per cent of its value, while a sovereign guarantee from the French government incurs no cost to the company.
IAF is currently authorised 42 fighter squadrons but has only 33 squadrons in its fleet. Acquisition of 36 Rafales will reduce IAF’s shortfall by two squadrons.
IAF had issued a tender for 126 Medium Multi Role Combat Aircraft (MMRCA) fighters in 2007, and at the end of the selection process in 2012, Rafale fighters were selected. Things got in a logjam when the price negotiations were taking place, and Defence Minister Manohar Parrikar later disclosed that his predecessor, AK Antony’s noting on the negotiations had ensured that the process gets stalled.
During Prime Minister Narendra Modi’s visit to Paris in April last year, India had announced its intention of buying 36 Rafale fighters from France in a government-to-government deal. A few days later, Parrikar announced that the old 126 fighter deal was dead and the 36 fighter deal will be a fresh acquisition. The two countries have been negotiating the 36 fighter deal since then.
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