Deals in Defence
Biz@India
March 2018
Will France, a dependable ally, give a push to the Indo-French defence ties and move beyond buyer seller relationship during the visit of President Emmanuel Macron to India? Though a dependable partner for decades, India and France are yet to realise optimum potential.
With about a year to go for the next general election in 2019, the political decibel over the multi billion dollar deal with France, for 36 Rafale fighters, is rising every day in India. The deal is being tarnished or defended depending on political convenience.
Controversy has surrounded most large defence acquisitions, since India signed the Bofors artillery gun deal during the 1980s. The alleged scam— involving pay-offs to middlemen to acquire Bofors guns—continues to reverberate in Indian politics, pursued by the investigating agency and litigations in the courts time and again. India’s acquisitions of submarines from Germany and France as well as some purchases from Israel have also been involved in corruption allegations.
The Rafale story is different in some ways. Six well-known global aircraft manufacturers bid to bag the contract of 126 Medium Range Multirole Combat Aircraft (MMRCA) fighter jets, dubbed as the largest ever defence procurement by India. The initial bidders were Lockheed Martin’s F-16s, Boeing’s F/A-18s, Eurofighter Typhoon, Russia’s MiG-35, Sweden’s Saab’s Gripen and Dassault’s Rafale. The French manufacturer bagged the contract but the deal got stuck in negotiations over price and guarantees for the 108 aircraft that were meant to be produced in India by the public sector Hindustan Aeronautics, in collaboration with Dassault.
With the stalemate seemingly endless, in 2016, India concluded an Inter-Governmental Agreement (IGA) with France for the purchase of 36 Rafale fighter jets at a cost of EUR 7.87 billion. The delivery is expected to begin in 2019. This deal does not involve any manufacture in India as all 36 would be supplied in fly away condition.
Allegations pertaining to the Rafale deal are threefold. First, that the prescribed procedures for large deals were not followed. Second, the final purchase price per aircraft turned out to be much more than the initial deal of 126 aircraft. The third involved the choice of the Indian partner for the offset component of the deal, under which the contact winner has to invest between 30-50 pc of the deal value in India. Critics say that Dassault chose an industrial group, allegedly close to the ruling party and which had no prior experience in aircraft manufacture.
However, some experts say that the deal has not been understood by its critics. Nitin A Gokhale, national security analyst points out, “the government went for 36 Rafale Jets as the Indian Air Force warned how India is losing edge over Pakistan due to ageing Russian fighter aircrafts. Secondly, as per the defence procurement procedures and Central Vigilance Commission guidelines, no negotiations can be held with the second lowest bidder (L2), which was Eurofighter in this case. If India had gone for a fresh tender, it would have taken another five years for the deal to be signed.”
Even after Prime Minister Modi agreed to buy 36 Rafale during his visit to France in April 2015, the inter-governmental deal was inked in September 2016. So there was a heavy negotiation in the interim period, asserts Gokhale. Currently, the Indian Air Force operates at 39.5 squadrons as against the assessed requirement of 44 squadrons of fast jets needed to tackle China and Pakistan. Accidents, ageing fleet aircrafts, delays in acquisition and poor domestic production have in equal measure contributed to the low number of squadrons over the years. The IAF has lost one fighter squadron in crashes every two years. From 2008 to 2017, a total of 56 IAF aircrafts have crashed. These include 37 fighters and 13 helicopters. It is estimated that by 2022–24, 14 squadrons of MiG-21s and MiG27s would have to be phased out on account of the total completion of their technical life.
Theory of Relativity
On the aspect of the price, critics say that India is paying more for 36 Rafale jets than what it would have paid for 126 jets that were scrapped. Experts point out that comparisons should be over the base price in the two deals. “When you talk about the overall package in a deal it is green aircraft, then it turns brown and then red. A lot of electronics, avionics and weapon systems are added to it. Cost also goes up according to the number of pods and armaments it can carry,” explains Col KV Kuber, an aerodefence consultant. He quickly adds that the real costing on these deals rarely surfaces. As per the deal, India will also get spares and weaponry, including the Meteor missile, considered among the most advanced in the world.
Despite the pressure by the opposition parties, the deal is unlikely to be delayed or derailed as not only the defence ministry, but even the users of the aircraft, the Indian Air Force, have defended the deal.
Make French in India
One of the basic questions in the deal is about the absence of any manufacturing of the aircraft in India and the consequential absence of transfer of technology as well as knowhow to India. This is in sharp contrast to the much-hyped pet programme of Modi, ‘Make in India’ which is meant to boost Indian manufacturing industry, raising its contribution to the Gross Domestic Product from the current 15 pc to over 25 pc in the next seven years.
Will the four-day visit of French President Emmanuel Macron take Indo-French Defence ties beyond a vendor-buyer relationship? Will it help India turn into a defence manufacturing hub? Or will it transfer technology to India?
“Today India is looking at the signature packages comprising mega programmes involving billions of dollars. The question is, how much France wants to be a willing partner and be part of the Make in India Programme?” asks Kuber.
There would be opportunities aplenty for France to position itself as a true partner in boosting the Indian defence manufacturing industry. India is now set to float a fresh global tender inviting global military aviation companies to manufacture 200 fighter jets. To accelerate the matter, India will be looking at new additions made by the global players since the Medium Multi-Role Combat Aircraft (MMRCA) trials were carried out in 2011. The aircraft then tested were Lockheed Martin’s F-16IN, Eurofighter Typhoon, French Dassault’s Rafale, Swedish Saab’s Gripen and Russian MiG-35.
While the fresh tender may be floated, there are also whispers, in Paris and New Delhi, that France is keenly pushing a follow-on order for another 36 Rafales. But, will India go for another 36 Rafale or more? This is one of the mysteries which may be answered during Macron’s visit as it could give some forward-looking statement on the possible course of future intent. The scope for France to assist in defence manufacturing in India is immense as the nation is involved in several projects, including the Scorpene submarines, which are currently being assembled by Mazagaon Docks Limited in Mumbai with French assistance. Another key initiative that is keenly awaited from the Macron visit is the possible refurbishment of the unsuccessful Kaveri engine project for the indigenously developed Tejas aircraft by Hindustan Aeronautics Limited. The French have agreed in principle to collaborate on the Kaveri engine, which lacks adequate power needed to fly the Tejas, which is currently being powered by General Electric engines manufactured in the US.
According to the latest developments, Safran, another defence major of France, is close to an agreement to supply a version of its M88 military jet engine for Tejas. “But at what cost?” asks Col Kuber. “If the refurbishment cost is around two to four billion dollars with no stakes, then India would have to negotiate it to bring it down to an acceptable level.”
Helicopters for defence needs is another sector with lots of scope as India needs around 800 to 1000 helicopters for its current needs. India has issued requests for information for 111 naval utility helicopters (NUHs) and for 123 naval multi-role helicopters (NMRHs) last year. Will the French get a slice of this pie? Two things may favour the French—the Indian Navy’s ageing light-utility helicopter, the Chetak, which is a licensed version of a French model built by India’s Hindustan Aeronautics Limited since 1975; secondly, Prime Minister Modi had visited the Airbus production facility in Toulouse. He was quite impressed by their commitment to India’s Make in India programme when they announced a hike in outsourcing from India (USD 2 billion). In 2016, Airbus Helicopters delivered its first AS565 MBe Panther helicopter to the Mexican Navy. The next potential market for the Panther MBe could be India.
DCNS designed the diesel-electric submarine – Kalvari
Apart from the Rafale deal, another mega deal between India and France is the Scorpene-class submarines. Prime Minister Narendra Modi, in December 2017, commissioned the first of the six Scorpene-class submarines, Kalvari, into the Indian Navy. The second, INS Kandhari is undergoing sea trials, while the third is the indigenously-built diesel-electric Scorpene-class submarine INS Karanj. It is manufactured by home-grown defence public sector undertaking, Mazagaon Docks Limited (MDL) in collaboration with French defence major DCNS, rechristened as Naval System. India is also in urgent need of adding to its rapidly depleting submarine fleet as the Indian Navy has only 13 submarines, as against the Indian Navy’s need of 28 and 68 currently deployed by China.
“There is going to be some amount of vulnerability in the seas for India,” warns Abhijit Singh, the Head of Maritime Policy Initiative at a leading private think tank-Observer Research Foundation. He is of the opinion that India needs a manufacturer who can supply submarines at a rapid pace in three to five years time. He believes that the French have an edge over the others. “The firm that will apparently get the contract for Project P-75 (India) will also produce the nonnuclear subsystem of the nuclear submarine. DCNS has a fine record,” he points out. He also adds that this is not going to be put in the public domain.
India is also undertaking major initiatives, to modernise its defence force, that go beyond acquisition of new fighter jets. These steps include upgrading avionics, engines, missiles on many of its fighter jets and various types of radars. French major Thales that specialises in radars, secure communications, drones and electronic missile systems has also set its eye firmly on India.
Subimal Bhattacharjee, a security analyst says, “The Indo-French defence tie-up has been a long and comfortable relationship, and mostly a buyer-seller one. But, French technology has been harnessed by Indian companies even before the current Make in India was launched.” A classic example are the submarines manufactured in Mazagaon Docks Limited (MDL).
India should find it easier to have a partner like France as unlike Americans, the French are not fussy and do not attach strings to the agreements. “Americans often insist on foundational agreements, refusing to share source codes as India has a strategic relationship with Russia. With France, India has not confronted such issues,” points out Gokhale who is also CEO & editor-in-chief of Bharat Shakti.
The French also tweak their designs as per the requirements of their clientele and have traditionally honoured their commitments. A big takeaway for India during Macron’s visit is a defence logistics agreement with France, just like the Logistics Exchange Memorandum of Agreement (LEMOA) with the United States. This agreement with France will allow India access to the strategically important French base in the Reunion Islands near Madagascar. “The move will enhance India’s military presence in these waters to counter China,” adds Gokhale.
Hiccups and Hurdles
However, the collaboration between the two nations has not entirely been free of hiccups and hurdles, mainly owing to the delay in transactions and/ or projects shooting over the budgeted cost and timeframe. For instance, the Scropene project has been inordinately delayed. “It is a significant delay. The P-75 programme was approved in 2005 and the first submarine was originally scheduled to be delivered to the Navy in 2012, and the final and sixth one, by 2016. It will be at least 2023 by the time Navy gets the final sixth submarine now,” observes Singh.
Aggrieved by inordinate delays a high-powered team from the Defence Ministry, led by Joint Secretary and Acquisition Manager (Maritime Systems), Ravi Kant, was sent to Paris in January to engage with vendors. During his visit, Macron is expected to assure the Indians that the French would ensure at least a cut in the delays of certain equipment that lead to timely delivery of submarines being produced in Mazagon Dock.
The visit has the potential and content to transform the defence ties between the two nations, even if India is now moving into the election mode as the parliamentary elections are barely a year away and the government is unlikely to go for major deals in the interim. But the French could well use this breather to show their commitment in boosting India’s defence manufacturing industry and step away from the traditional buyer-seller relationship that two nations have had so far.
