Officials familiar with Rafale negotiations said higher political intervention may be required to hasten the process. These officials did not want to be identified. While the old Rafale deal — buying 126 aircraft — has been cancelled, progress on buying 36 French jets is stalled because the French say spending 50% of the value of the deal in Indian defence sector will push up the total deal cost for India.
The 36 Rafale jets were offered at just over $200 million each when the PM visited France in April, a price 25% lower than that offered to the UPA government.The French understanding was, officials say, that the standard 30% offset obligation will apply and it will met while creating the infrastructure for Rafale. Defence minister Manohar Parrikar, however, has been insisting on 50% offset (he told ET this in an interview published on May 11) and Indian negotiators have been asking for this as well.
The French have argued 50% offset obligation will not allow them to sell the jets at the price agreed upon in Paris in April. The deal size — less than $8 billion, as agreed during Modi's France visit — will also go up, officials say, if the Indian Air Force plan to create two bases for Rafale jets isaccepted. Two bases will require separate, high-cost infrastructure as well as two sets of maintenance, training and armaments storage facilities. There's also the issue of integrating third country weapon systems in French-made Indian Rafale jets. This integration will also drive up costs.