Congress president Rahul Gandhi at AICC headquarters in New Delhi | PTI
Congress president Rahul Gandhi at AICC headquarters in New Delhi | PTI
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For India, it is the season of miscalculation.

In the heated debate on the Rafale deal in Parliament, the Congress, the chief Opposition, and the ruling Bharatiya Janata Party (BJP), have been throwing a lot of big numbers at each other.

To understand the fine print, it is important to decode the staggering numbers and see how the Congress’s UPA and the BJP’s NDA fare on the Rafale deal.


Also read: There’s a humongous scam in the Rafale deal. It is called stupidity


The UPA deal that wasn’t

Congress president Rahul Gandhi keeps pitting the figure Rs 526 crore per aircraft negotiated by the UPA—during Manmohan Singh’s tenure as PM—for a fully weaponised Rafale against the Rs 1,600 crore per aircraft signed by the Modi government for 36 Rafale jets.

So, how did the figure ‘Rs 526 crore’ possibly come about? The MRCA tender of 2007 was budgeted at $10.4 billion, which gave the contenders an indication of what India’s expectations were. The exchange rate for the dollar in 2007 was about Rs 40, pegging the deal at about Rs 42,000 crore, or about Rs 330 crore per fighter.

The Medium Multi Role Combat Aircrafts tender (MRCA tender) had specific requirements from the Indian Air Force, including the provision of AESA radar, radar warning receiver, helmet-mounted display, ability to take off and land at high altitudes in cold conditions, firing beyond visual range missiles and standoff attack capabilities.

The French Senate report of 2013 put the flyaway cost of the single seat Rafale C at €68.8 million. The Defence Services Assistance Agency defines: “Flyaway cost include the cost of procuring the basic unit (airframe, hull, chassis, etc.), a percentage of basic unit for changes allowance, propulsion equipment, electronics, armament, and other installed government-furnished equipment, and nonrecurring production costs.”


Also read: India has a right to know how the CJI-led bench went wrong with Rafale judgment


Given the conversion rate of the Euro was Rs 56 in 2007, the flyaway cost of Rafale comes to about Rs 385 crore, which is quite close to the budgetary estimate of the MRCA tender.

In 2014, the UPA government said there was no money to ink an agreement in that financial year, and as elections were due, it was left to the next government to conclude the deal.

At the time, the Euro stood at about Rs 80, which meant that in rupee terms, the cost of the Rafale had escalated to about Rs 550 crore—considering the known flyaway cost of €68.8 million. This is probably why Rahul Gandhi and the Congress quoted the figure of Rs 526 crore.

Again, here I am merely trying to make sense of the figures being thrown around.

The UPA government was not close to sealing the deal with France as negotiations were stuck on various aspects of costs and guarantees for the work done by Hindustan Aeronautics Limited (HAL). Dassault was in violation of the terms of the MRCA and lost the L1 or lowest bidder status after it escalated costs. The price does not include the design and development cost of the jets which, if added, would take the price to €160 million a jet.

The NDA deal that shortchanged India

The official indication of how much the 126 jets would cost came from then defence minister Manohar Parrikar when he said it was pegged at Rs 90,000 crore ($14.5 billion), or Rs 714 crore per jet.

However, in April 2015, PM Modi announced his decision to buy 36 Rafale jets. At this point, there was no clarity on how much they would cost. Subsequently, negotiations were held and a €7.87-billion deal signed in September 2016, which translated to about Rs 58,000 crore. That is where the figure of Rs 1,600 crore per jet came from.

Although the government has refused to share the details, a breakup of the cost has been reported. It put the price of 36 jets at €3.3 billion: the cost of India-specific enhancements stood at €1.7 billion, spares and other supplies at €1.8 billion, weapons package at €710 million and performance-based logistics at €353 million.

This is where the problem may lie—in terms of the price France has extracted from India. India-specific enhancements stood up to nearly €50 million a jet. All these enhancements—as mentioned earlier—were requirements in the MRCA tender for which all the six contenders, including Dassault, had quoted the base price and budgeted. (In 2007, it was a $10.4-billion deal for 126 jets.)

The MRCA tender included lifecycle costs that would involve the supply of some of the associated spares—currently pegged at €1.8 billion—which again works out at €50 million a jet.


Also read: On Rafale, BJP is not corruption free but investigation free


These two headings provided the French with the opportunity to probably recover some of the development costs, which stood at €25 billion. The benchmark price was set when France announced a deal with Qatar for 24 Dassault jets, priced at €6.3 billion in April 2015. This included missiles like Meteor and Scalp among others that India too has sought to procure.

The cash-rich Qataris could afford it and their requirement was limited. They subsequently bought another 12 jets for €1.1 billion under the ‘options’ clause.

Note that India has not negotiated any options clause.

The Congress is, therefore, wrong in saying it would have got the Rafale jets for Rs 526 crore since France had breached the MRCA terms and was not willing to move from its position.

The Modi government, on its part, erred in announcing a deal whose price it did not know and handed France an opportunity to rip India off.

To put things in perspective, Japan recently announced its decision to buy 100 F-35 fifth generation fighters for $8.8 billion—with AESA radar, helmet-mounted display, jammers, sensors et al.

Yusuf T. Unjhawala is the editor of Defence Forum India and a commentator on defence and strategic affairs. He tweets @YusufDFI

Check out My543, our comprehensive report card of all Lok Sabha MPs.


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10 Comments Share Your Views

10 COMMENTS

  1. Sir what about the life cycle cost of the F-35 when you are coating the cost of the 100 jets or you just want to give strength to your article.

  2. A question of mere facts and arithmetic has been deliberately, and with nefarious intent, converted into innuendos, false allegations and wild lies by Rahul Gandhi. He now really believes that his Goebbelsian attempts to speak lies and spread misinformation on Rafale are successful enough to pitchfork him into the PM’s chair, or at the very least, stop Modi in 2019 from becoming PM again. Naturally, he will fail in this. You cannot conduct a campaign relying only on lies for very long.

  3. In practice, all defence deals involve some payoffs , with very few exceptions. The high price paid by India for 36 Rafale and the way the negotiations were started abruptly thus placing us in a weak position from the outset just mean that payoffs will take place , not to individuals but to the ruling party. These will gradually filter down via various untraceable channels . This doesn’t mean that the Congress hasn’t benefited from earlier deals. Yes they must have.

    The only difference is the BJP’s claim of being a snow white angel.

  4. It would be really helpful to understand really “why” the previous governments could not conclude the deal when the need for the IAF was very clear.
    Also, the press need to stop dutifully reporting every word uttered by every party leader- they should do real analysis and report what the facts and who is speaking the truth.

  5. There is indeed a quid pro deal, Modi may not have got money, but party may have got or may get in election year. Even Rajiv Gandhi may have not got money on Bofors but party may have got. Realising the problem middle men etc, he banned them but the present govt allowed Company representative who would get paid legal fees. The ban was lifted by Parikar in 2015

  6. I am not a defence expert. However, as per definition provided in Wikipedia, the flyaway cost can be meaningfully compared to another cost metric, the weapons system cost. The weapons system cost (often referred to as the procurement cost) is the total price of the aircraft. A good way of looking at the difference is the flyaway cost is the cost of making the aircraft, but the weapons system cost is the cost of buying the aircraft. As the two deals were differently structured and were negotiated in two time zones, exact comparison is not feasible. Moreover, there is no clarity regarding what the 2007 bid exactly contained. Union FM Arun Jaitley has stated that the 2007-bid included (may be for just 18 flyaway jets) two sets of prices – one of a bare and simple jet and other of a fully weaponised jet. Accordingly, the 2016- price for bare plane was 9% cheaper and for fully weaponised plane 20% cheaper than the 2007- price. In any case, in 2007 bid , manufacturing cost of 108 planes was just an estimate and not actual cost. Who was to bear the escalation in costs, there is no clarity. Did the bid calculations include cost of weaponisation and other costs? If not, the comparison is simply bogus and meaningless.
    Ajay Shukla in his article published on rediff.com has stated that the Egyptian air force has paid €5.2 billion for 24 fighters (€217 million per rafale plane) and is reportedly considering buying 12 more, a ‘fully loaded cost’ of €217 million per Rafale. Similarly, the Qatar air force has paid out €6.3 billion for a similar number of aircraft, with a ‘fully loaded cost’ of €262 million per fighter. Compared to that Modi government, in buying 36 Rafales for €7.8 billion ($9.2 billion or Rs 58,000 crore), has paid €217 million per plane. (Exact position no one knows for sure)
    In any case, it is better to have fighter planes even at higher price, rather than not doing anything and resorting to endless debates, Time has a value and inaction has a cost.

  7. I wish the article had used just any one currency instead of confusing readers with multiple currency.Looks to be a deliberate ploy.

  8. The deal with France was done in a hurry as time was running out for obtaining required aircrafts for IAF. As UPA delayed the decision on MMRCA tender, NDA reached a point where it had to cancel the tender and go for a fresh one but in the meanwhile, IAF had to be given at least 2 squadrons of its favorite aircraft. Going to Russia for additional Sukhoi 30s was not the alternative. France has definitely milked India in the deal but French aircrafts have always been expensive but of high quality. What NDA can claim is that though we perhaps paid high price, we pinned them down with a good 30 per cent offset obligation. This will be definitely be useful to us, particularly if it helps in resolving Kaveri engine issues.
    In any case, there is no question of any corruption by Modi in the transaction. Also, charge of helping Anil does not stand as off set obligation has to be fulfilled by different French companies and government has no role at all in it. Unless Rahul wants us to believe that Modi begged of Hollande to help out his Bhakt, Anil!

    Finally, one can debate ‘ Rafale or something else’ but not corruption and crony capitalism! Hope Congress finds some other issues to beat Modi with…..

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