MOD raises concerns over the cost escalation in jet deal

Rafale fighter
Rafale fighter

As the French foreign minister Laurent Fabius met Indian political leadership, including prime minister Narendra Modi, pressing for sealing the multi-billion Rafale combat aircraft deal, New Delhi has raised serious concerns over the cost escalation of the fighter jet deal. Struggling to pay the heavy cost of the deal, the ministry of defence (MoD) is considering an option of down-sizing the deal from 126 to 80 fighter jets.

According to officials, who are privy to the development, defence ministry has asked the French government to revise the price structure because the deal has gone much beyond the expected lines. And during course of negotiations with the Dassault, which manufactures Rafale jets, the defence ministry has been asking for price revision. Due to difference of opinion, the cost negotiation committee, which was set up in February 2012 to work out the modalities for the deal, has not been able reach conclusion and the committee is yet to submit its report to the ministry.

Officials claim that in 2007, when the tender was floated, the cost of the programme was $12 billion. When the lowest bidder was declared in January 2012, the cost of the deal shot up to $18 billion (Rs1.08 lakh crore). And now with inclusion of transfer of technology, life cycle cost and creating assembly line, the deal has virtually cross whopping $20 billion.

A top official told dna that if the government signs the deal in the next couple of months, it has to pay advance payment of at least $1.5-2 billion (Rs.9- 12,000 crore) to Dassault. And for the newly-elected BJP-led NDA government will have to compromise on other defence equipment, as major chunk of defence budget will go in for the advance payment. And it is also believed to understand that new government is also not comfortable with the life cycle cost method adopted by the previous UPA-II government and even a senior BJP leader and former finance minister Yashwant Sinha had objected to the life cycle criteria.

“Cost escalations and disagreements over production sharing with Hindustan Aeronautics Limited(HAL) has led to the delay in freezing the contract. French have been asked to re-look at the price factor,”said an officer.

IAF officials maintain even if the deal is signed by the end this year, first lot of Rafale aircraft will arrive India by 2017. And by the time, IAF has to phase out its MiG 21 squadrons.

The air force is seeking to replace its ageing MiG-21s with a modern fighter and MMRCA fits between India’s hig-end Sukhoi-30MKIs and its low-end Tejas LCA lightweight fighter. The IAF has a sanctioned strength of 45 fighter jet squadrons. However, it only has 30 squadrons operational as old aircraft have been retired.

Eighteen of the 126 planes will be purchased directly from Dassault, while Hindustan Aeronautics Limited will manufacture the other 108 under a licence, at an upcoming facility in Bangalore.