Posted by: John Elliott | April 10, 2015

Modi softens on ‘Make in India’ to get French-made jets into depleted Air Force

Dassault coup to make 36 Rafale fighter jets in France not India

Narendra Modi has taken India’s defence industry by surprise with a totally unexpected decision to buy 36 Rafale fighter jet aircraft (below), probably costing around $4.5bn, from Dassault Aviation in a deal that is being negotiated directly between the Indian and French governments.

rafale-fighter-jet-2Modi is on an official visit to France. He said after holding talks with President Hollande in Paris on a range of subjects that included nuclear energy co-operation and Euros 2bn French investment into India, that he had asked for 36 Rafale multi-role combat aircraft (MMRCA) “in fly-away condition as quickly as possible”.

This means that the planes will be completely made in France, which is a temporary blow for Modi’s Make in India campaign that has been relying on defence orders for early successes that have yet to materialise.

The Indian Air Force (IAF) however is seriously depleted of serviceable fighter jets, just as other branches of India’s defence forces are deplorably under-equipped. It has only 32 working squadrons compared with a requirement of about 40 and the total is expected to come down maybe to as low as 20 – half what is needed – within three years when old Russian MiG and other aircraft are taken out of service.

That has led Modi to cut through the red tape of defence acquisition procedures to initiate a quick deal, even though three years of tortuous negotiations to buy 126 Rafales have failed to reach agreement. The first 18 of those planes would have been made in France instead of the new 36 (two squadrons) figure.

Negotiations will, it is understood, now continue separately for 108 aircraft to be made as originally planned in Bangalore at Hindustan Aeronautics (HAL), the Indian public sector’s aircraft builder. The deal was originally priced at around $13bn when the Rafale was selected by India in 2012, but the figure demanded by the French company has risen to $18-20bn. It is not now clear how urgently India will pursue these negotiations, though there seems little operational or financial logic in having only 36 aircraft in the airforce.

Narendra Modi arrives in Paris

Narendra Modi arrives in Paris

The proposed purchase of 36 “fly away” aircraft, for delivery after two years or so, can be presented as an example of Modi’s willingness to spring unconventional surprises when that is in the national interest – and clearly there is an urgent need to buy aircraft quickly if the IAF is to look a viable fighting force.

But it is also a coup for France and Dassault, which have played hardball since 2012 when India controversially picked the Rafale, after five years of tenders and evaluations, instead of the European EADS consortium’s Eurofighter. Three other contenders – Boeing’s F-18 and Lockheed’s F-16 jets from the US, and Sweden’s Saab Gripen – were elimitated earlier.

First, Dassault refused to accept HAL as the lead Indian production agency because of the government company’s questionable delivery and quality reputation. Instead it wanted the lead role to be played by Reliance Industries, run by Mukesh Ambani. Reliance has no engineering manufacturing experience but has soaring ambitions and strong finances, plus some political clout (especially with the last Congress government).

HAL successfully mobilised support within the defence establishment and side-lined Reliance, but Dassault then refused to bear responsibility for the quality and quantity of aircraft produced by HAL, and it also raised the price.

A.K.Antony, the Sonia Gandhi loyalist who was the non-performing defence minister in the last government, could not cope with such pressures and ducked taking a decision, so the Modi government inherited tortuous negotiations that were stuck in bureaucratic rules and procedures, and an air force urgently needing aircraft.

The new defence minister, Manohar Parrikar, has been pushing for an order to be placed but Arun Jaitley, the finance minister, has been saying that there are not sufficient funds available for 126 aircraft. That led India’s defence industry and most analysts to believe that the negotiations were going nowhere and that there would be no Rafale contract.

Indian-Prime-Minister-Narendra-Modi-with-the-President-of-France-Mr.-Francois-Hollande-in-Paris-on-April-10-2015.-300x232

Narendra Modi and Francois Hollande before their talks

Instead, Modi took the decision to do the new government-to-government negotiated deal, which is the usual structure for defence contracts with Russia and is sometimes done with the US.

Earlier today it was widely reported that he would ask for 63 jets.

It is not clear whether that was incorrect or whether the number came down during the talks, possibly to blunt criticism that the deal went against the Make in India policy..

The government can now try to push down the price of the aircraft because Dassault desperately needs work at its French factories for the Rafale – it has no overseas orders apart from 24 aircraft for Egypt.

It will probably have to face renewed criticism that the Rafale is not the best choice for the IAF because of its high cost and its lack of other significant orders. The US, which was seriously annoyed when Boeing and Lockheed aircraft were dismissed, will probably argue for its aircraft to be reconsidered. Others will argue that both the Saab Gripen and even the Eurofighter would be lower-cost alternatives.

Many experts have been puzzled why India chose the Rafale in the first place. Today’s developments do nothing to clear the air on that.


Responses

  1. John, I would say some movement. It is also a message that he means business right or wrong. This action is a message to the world that we do business at our terms. About the Rafale being good or bad is conjectural. two experts only agree over their dead bodies. In west they play ball after a decision, here they stall progress. Channel tunnel would not have been built had Maggie not put her foot down the choice of design and contractors. Here we are a each others throats, because we get experts dime a dozen. Make in India would be pipe dream for sometime, so be it. We have to be Militarily and Economically strong is a clear message.

    However, to go with Reliance would be disastrous. That would be cronyism to the core. Reliance would wean away all the good guys at HAL at 10 times the salary & would do nothing for years. All this PM has to do is improve governance of PSUs along side better quality of life with incentives as good or near Reliance. This to my mind is also a message to HAL and their ilk that get your act together or else? I would say Positive if Reliance is not the beneficiary. They could at best be component suppliers. Cameroon et al too needs to introspect like the rest of the world. Very very clear message


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