With French Dassault Aviation's Rafale now qualifying for the final round of negotiations with the government for its 126 fighter aircraft, most expect the final $10.3bn deal to be clinched in a few months from now-the final cost will be decided through tough negotiations and once a figure is arrived at, this will be sent to the Cabinet Committee on Security for clearance.
It is useful to examine the deal on six parameters. First, the need for a large acquisition. It is now amply clear that the gap between a fast depleting (it could go down to 22 odd squadrons by 2018-18) fleet and what is required is increasing by the day-while the sanctioned fleet is 39.5 squadrons, successive air chiefs have hinted the ideal strength to be somewhere close to 45 squadrons. If the obsolescent quotient of the IAF fleet strength crosses even 50% (ideally, a typical fleet ought to possess 30% state-of-the-art, 40% current generation and 30% ageing fleet), the capability of the air force will be severely hit. One may cite enough reasons for numerical deficiencies, but the hard fact is that India needs about 180-200 fighters in the next 10 years, especially in the current generation category, in order to remain modern, robust and battle-worthy. The 126 MMRCA deal with Dassault thus needs a prudent follow-on order by 2017 at the latest.
The cost is a complicated subjective issue. The total cost of the 126 MMRCA, including life-cycle costs, could be anywhere around $18-20 billion, which is staggering by any standard. This is where prudence would play a role. It is not a question of having the 'best' or 'reasonably good' product, but it depends on how the defence ministry recovers a good portion of value of money through offsets or real transfer of technology or even spin-offs from the programme. Given the recent experience of cost negotiations between the defence ministry and foreign vendors, including the one with Dassault on the mid-life upgrade of the Mirage fleet, it will be interesting to see how both sides negotiate. It is still early days for Dassault and further developments in the MMRCA contract will be closely watched. While Dassault will go all out to grab the deal, EADS also smells an opportunity, if cost negotiations with Dassault fail.
The IAF and the defence ministry/political leadership together deserve compliments for shaping the procurement process thus far and ensuring that such a gigantic acquisition follows procurement guidelines and does not falter on time delays. Two points are worth mentioning. First, the MMRCA has gone through the process, right from request for information and request for proposal through the rigorous process of technical/field evaluations to commercial bidding and contract negotiations in a of less than five years. Ideally, a major procurement process takes about 36 to 52 months, as mandated by the defence procurement procedure and the MMRCA, if every thing goes well, will take about 60 months-a remarkable feat from any account given the size, complexities and players involved. Second, the process has been fairly transparent. There were disappointments, even strong reactions from the results of technical and field evaluations, especially by the Americans. This is obvious. However, the defence ministry has been careful enough to explain the results to each of the vendors at appropriate stages of procurement.
The fourth parameter: political and strategic considerations. It is common knowledge that big arms deals are less about economics and technology and more about politics, and the MMRCA was not expected to be an exception. But two things suggest the deal is less about politics per se and more about a prudent blending of economics, technology and a bit of politics. First, as per the defence procurement procedure, which contains a clause "Political and Strategic Considerations" (Page 23, Para 73, DPP-2011), the MMRCA has actually followed a typical text-book method of all procedural arrangements by neither being a single vendor case nor a case where strategic or diplomatic dividends have been spelt out. Second, under such considerations, the winner may not necessarily be the lowest bidder, whereas Rafale has been selected purely on the basis of being the lowest bidder. The MMRCA, it appears at least on the surface, has blended political prudence without compromising the qualitative needs of the IAF.
Despite tall claims made by the defence ministry on the fifth parameter-offsets-the details are sketchy. The ministry claims it has managed to sign offsets contracts worth as much as $2.1bn and another $8.5bn are at various stages of negotiations but not too many details are available. When the offsets are signed with Dassault, hopefully the ministry will come out with more details that can be examined by analysts to gauge the degree of benefits that the industry is likely to get.
Last but not the least, the future. While India will spend around $200bn-plus in the next 10 years, future contracts like the MMRCA should pave the way for opportunities for Indian firms to upgrade their design, development, production and innovation capabilities. Much would depend on how vendors like Dassault are lured to help the Indians and in the process help themselves. India must ensure that arms deals are not a one-way traffic for suppliers.
(The writer is a Senior Fellow in security studies at Observer Research Foundation)
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