Narendra Modi orders 36 Rafale jets, signs 17 agreements with France

Prime Minister Narendra Modi said on Friday that the Indian government will purchase 36 Rafale fighter jets from of Dassault Aviation SA of France after years of disputing over the deal.

The terms and conditions of the agreement have yet to be finalized, Modi said at a joint press conference with French President Francois Hollande.

An agreement on proceeding forward on the stalled nuclear project in Jaitapur in Maharashtra was among the 17 pacts signed after talks were held between Modi and Hollande, the Press Trust of India reported.

The Jaitapur project, where French company Areva is to set up six nuclear reactors with total power generation capacity of about 10,000 MW, stuck for long because of differences over the cost of electricity to be generated.

“I have asked President (Francois Hollande) to supply 36 ready-to-fly Rafale jets to India,” Modi said at a news conference on the first day of a state visit to France. “Our civil servants will discuss (terms and conditions) in more detail and continue the negotiations,” he said, speaking in Hindi through an interpreter.

“Government of India conveyed to the government of France that in view of the critical operational necessity for Multirole Combat Aircraft for Indian Air Force (IAF), government of India would like to acquire 36 Rafale jets in fly-away condition as quickly as possible,” Modi and Hollande said in a joint statement.

“The two leaders agreed to conclude an inter-governmental agreement for supply of the aircraft on terms that would be better than conveyed by Dassault Aviation as part of a separate process underway; the delivery would be in time-frame that would be compatible with the operational requirement of IAF; and that the aircraft and associated systems and weapons would be delivered on the same configuration as had been tested and approved by IAF, and with a longer maintenance responsibility by France,” the statement said.

“Dassault Aviation, which is the Indian Air Force supplier for more than 60 years, is honoured of the repeated trust of the Indian government and welcomes its intention to finalize the acquisition of 36 Rafale aircraft at conditions that will allow to meet rapidly the security needs of India,” Dassault Aviation said in a statement.

Dassault Aviation is grateful to the Indian authorities to be given the opportunity to pursue and extend their partnership, the statement said.

India had selected Rafale for the deal in 2012, but the final contract is yet to be signed. While 18 jets are to be bought off the shelf, 108 are supposed to be manufactured in India by Hindustan Aeronautics Ltd. The main issue concerns the pricing, which is basically the production cost in India, and Dassault’s reluctance to stand guarantee for the 108 fighters to be built by state-run HAL.

“It’s a welcome breakthrough. The global defence community was concerned with the eight-year-long bidding process,” said Amber Dubey, partner and India head of aerospace and defence at global consultancy KPMG.

“The cancellation of the Avro replacement deal wherein Tata-Airbus were the sole bidder had dented sentiments. Doubling the order for off-the-shelf Rafale fighter jets from 18 to 36 is a positive gesture from India,” Dubey said.

“It might be a great relief and morale booster for the French government, Dassault and their partners. The goodwill created can be used to settle the pending issues in a win-win manner. The Indian government may also expect a reciprocal gesture from the French government on their ‘Make in India’ initiative beyond just the Rafale deal,” Dubey said.

France also announced an investment of €2 billion in India as Prime Minister Modi invited French companies to pump in money in technology in the fastest growing economy.

France will invest €2 billion in India, President Hollande announced at a CEO forum here.

Inviting French investors, Modi said, “There is no bigger market than India. It is also the fastest growing economy since the last six months. Various rating agencies like World Bank and Moody’s have said in one voice that India is the fastest growing nation.”

“It is rare to find a country with a market, with the government determined on development and demographic dividend. Investors are usually worried about the security of intellectual property (IP). Only democracies like India can guarantee that,” Modi said.

Addressing the CEO forum, Hollande said: “We are ready to allocate through French companies €2 billion to support India’s sustainable development.” He said France will partner India in urban development of infrastructure such as railways and defence and nuclear sector.

Reuters on Friday reported that India’s purchase of 36 French-made Rafale jets is not part of a larger order still being negotiated between the two countries, quoting a French defence ministry official.

The value of the larger 126-plance deal being negotiated is estimated to have grown to about $20 billion from an initial $12 billion, primarily because of an Indian requirement that 108 of the jets be built in the country, Reuters reported.

“Just as we are delivering the first upgraded Mirage 2000, I am delighted by the decision of the Indian authorities which gives a new impetus to our partnership for the next decades and comes within the scope of the strategic relationship gathering France and India,” said Eric Trappier, chairman and chief executive officer of Dassault Aviation.

Dassault Aviation has delivered more than 8,000 military and civil aircraft delivered to 90 countries over the past 60 years, according to its website.

With 60% of India’s defence requirements met through imports, local defence production is the heart of Make In India programme, Modi had said in February.

“We have the reputation of the largest importer of defence equipment... We too need to increase our defence preparedness. We need to modernize our defence forces,” Modi had said.

He said that a strong Indian defence industry will make India more secure. It will have room for the public sector, private sector and foreign firms.

As per allocations proposed under budget estimates 2015-16, defence budget constitutes 13.88% of total central government expenditure. In the last 15 years, defence expenditure has never been less than 12% of total central government expenditure.

The government does not have authentic figures for the defence budget of China. However, Stockholm International Peace Research Institute (SIPRI), has estimated that in 2013, 8.3% of China’s general government expenditure was devoted to military expenditure, according to defence ministry.

The government has revised the foreign direct investment (FDI) policy to allow FDI up to 49% in defence sector through government route and above 49% through approval of cabinet committee on security, on case-to-case basis, wherever it is likely to result in access to modern and state-of-the-art technology in the country.

Reuters, AFP and PTI contributed to this story.