Economy

Rafale planes: MoU signed, but negotiations on price continue

Nayanima Basu New Delhi | Updated on January 19, 2018

Inching closer Defence Minister Manohar Parrikar exchanging documents with his French Counterpart Jean-Yves Le Drian after signing an MoU for the purchase of 36 Rafale fighter Aircraft, in the presence of Prime Minister Narendra Modi and French President Francois Hollande, in New Delhi, on Monday RV MOORTHY

An eco-friendly ride This photograph released by the official Twitter page of the PMO shows Prime Minister Narendra Modi, visiting French PresidentFrancois Hollande and French Foreign Minister Laurent Fabius (left) riding the Metro in New Delhi, on Monday.

Financial aspects will be resolved soon, say Modi, Hollande





The much-touted deal between India and France to buy 36 Rafale fighter jets for the Indian Air Force (IAF) remained inconclusive with negotiations still not complete, and both sides ended up signing a memorandum of understanding during the visit of French President François Hollande.

The first step for such deals is an MoU, followed by an Inter-Governmental Agreement (IGA), and finally the commercial agreement.

“There is an element of desire to close the deal as soon as possible. People are working on the final agreement. There is considerable progress in the talks since last year. Once the financials are agreed then the IGA will be signed in its entirety,” said Foreign Secretary S Jaishankar.

The entire deal was earlier pegged at $4 billion when Prime Minister Narendra Modi had visited France in April last year, where he promised to buy 36 jets in flyaway condition.

Pricing issue

The IAF has asked for certain changes in the main design of these 36 jets, which led the French to increase the price by an additional $5 billion, bringing the total cost to $9 billion, a figure that was “unacceptable” to India, a top level official told BusinessLine.

“The issue was never about offsets because all these jets will be made in France, although India had made a proposal to make some of them here. However, the real issue is that of price. If you want customised planes, the price has to be more,” the official added.

So technically, the pact that was signed on Monday by Defence Minister Manohar Parrikar and his French counterpart Jean-Yves Le Drian, was a MoU and not an IGA because the negotiations have not been completed yet.

“…the financial aspects pertaining to purchase of Rafale jets will be resolved as soon as possible,” Modi told reporters after holding a bilateral meeting with the French President.

Financial aspects

Hollande, who will be the chief guest at the Republic Day celebrations, said the financial aspects will be sorted out in a “couple of days”.

The original plan was to buy 126 of these medium multi-role combat aircraft, with the option of co-producing 108 of the jets. This was decided by the erstwhile United Progressive Alliance regime, but was changed by the BJP after it came to power in 2014.

However, sources said, once the 36 jets are acquired, India might make a proposal to purchase more of the twin-engine aircraft.

Published on January 25, 2016

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