India's Rafale deal stuck on price negotiations
13 August 2015
India's negotiations with France's Dassault Aviation for purchase of 36 Rafale fighter jets is stuck on India's offset clause and tweaking of weaponry technology which, the French company says, is driving up cost.
Dassault is now reported to have raised the benchmark price based on its deal with Egypt as against its earlier offer of the aircraft to India at a price at which it sold the fighters to its own air force.
India had in April agreed to buy 36 Rafale jets in fly-away condition, the price of which is still under negotiation, while Egypt had signed a contract to buy 24 Rafale jets from France in a €5.2 billion deal.
The ongoing government-to-government negotiations are also stuck over the offset clause, which calls for mandatory localisation of parts production to help Indian industry.
Also, the Rafale manufacturer says the modifications required on the jet to accommodate indigenous integrations may also cause price escalations.
''The French side has made the price offered to Egypt the new benchmark. Further cost escalations were discussed due to the modifications that may be required to integrate Indian systems on board the fighters,'' a Defence Ministry official said.
According to sources, one of the contentious issue was the offset clause, which requires 30 per cent indigenous content in defence contracts costing more than Rs300 crore. While Dassault had offered 50 per cent indigenous content in the earlier 126 Rafale jet deal, there is lack of clarity regarding offsets in the purchase of the 36 jets.
The government-to-government agreement, which was announced during Prime Minister Narendra Modi's visit to France, sidelined the then ongoing negotiations with French manufacturer Dassault for buying 126 fighter jets.
As agreed during the PM's visit, the Indian and French teams are now busy negotiating in Delhi to thrash out the fine print of the contract which remains to be signed.