Indian MMRCA Bill Balloons To $17 Billion

The value Indian MMRCA deal is set to inflate to a whopping $17 billion from the original $12 billion by the end of this year thanks to the falling Indian rupee.

The rupee currently stands at INR 59. 80 against the dollar and economists predict this number could rise up to INR 65 by the end of this year.

At the time of the announcement in January 2012, the rupee was being traded at INR 42 against the dollar and the deal was then valued at approximately $12 billion for 126 fighter jets.

With the current value of the rupee, the deal could potentially be worth $15 billion. However, if negotiations are postponed until later this year India may very well end up with a $17 billion bill from Dassault.

The deal was originally expected to be concluded by June 2012; however both sides have been unable to reach an agreement.

Earlier last month, top executives from HAL and Dassault Aviation met on the sidelines of the Paris Air Show to discuss the progress of ongoing projects. However, both companies refused to entertain any media queries about the MMRCA contract.

“Both the teams expressed satisfaction on the work already achieved by the integrated teams and renewed their commitment towards successful completion of the various projects,” they said in an official statement.

Offset hurdles have been the major road block to signing the deal. Dassault earlier this year wrote to the Indian MoD demanding it be given the overall responsibility of the project and clearly identify HALs role.

Despite the ministry asserting that HAL would act as the project’s ‘lead-integrator’ as per the terms of the RFI issued in 2007, Dassault is now insisting that it be given the freedom to decide on the quantum of work to be shared between companies.

According to the original terms, eighteen of the 126 planes are to be purchased directly from Dassault, while HAL will manufacture the other 108 under a licence at an upcoming facility in Bangalore.

Once the contract has been signed, HAL will have a very short period to set up an entirely new assembly line for the Rafale fighters. According to a report published by a French publication Usine Nouvelle last year, Dassault could end up producing more than 18 aircraft in France than originally agreed to because “they (some 500 French companies) would still get far more than 50% of the production associated with the future contract during the initial years”.

The report also adds that although “the RFP originally demanded offsets of 50% of the contract value and technology transfers, several factors could explain this work division that is so favorable for French industry”.

Meanwhile, in 2012 the Indian government mandated that transfer of technology could be counted as offsets, though it might not apply to the MMRCA as this tender was floated under the earlier procurement policy. This also could be an issue of contention in the commercial negotiations as the MMRCA contracts mandates 50% offsets.

Meanwhile, French Defence Minister Jean-Yves Le Drian said that his country hopes to begin exporting Rafales to India by 2016.

Le Drian is expected to visit New Delhi soon to conclude the Indian MMRCA contract, the report added.