India’s decision to buy 36 Rafale fighter jets in fly away condition from France may have an offset clause thereby making it mandatory for its manufacturer — Dassault — to invest at least 30 per cent of the total cost of the deal into the Indian Defence industry. The likely price of the deal is worth over six billion dollars and the offsets will amount to two billion dollars. Offset policy was first introduced as part of the Defence Procurement Procedure (DPP), 2005, under which a foreign company has to invest at least 30 per cent of the deal into India if the contract is worth over Rs300 crores.
The DPP, 2013 indicates that the objective of the Defence Offset Policy is to leverage capital acquisitions to develop Indian Defence industry by fostering development of internationally competitive enterprises. It also aims to do it by augmenting capacity for research, design and development related to defence products and services besides encouraging development of synergistic sectors like civil aerospace and internal security.
The Rafale deal is a Government to Government deal wherein the French Government stands guarantee for the product and officials of two countries will thrash out the off set clause while negotiating the overall deal, sources said here on Tuesday adding earlier Government to Government defence contracts also had offset clauses. Offset clause will help the Indian private and public sector industry to procure high end technology and sources said the Indian Government is likely to insist Dassault to forge joint ventures with the Indian industry.
This comes in the backdrop of Defence Minister Manohar Parrikar stating on Monday that the deal for 36 Rafale jets does not mean that ‘Make in Indian’ programme has been set aside. He said everything will depend on the quantum of the jets that India would eventually be interested in, besides the 36 and the terms and conditions agreed to once the negotiations start.
Incidentally, Dassault would have to invest at least 50 per cent as offset if the Medium Multi-Role Combat Aircraft Contract (MMRCA) contract had gone through. However, Parrikar hinted that the tender process for MMRCA will be scrapped after Prime Minister Narendra Modi’s announced in Paris last week about India’s decision to buy 36 Rafales off the shelf.
As per the MMRCA terms, India was to buy 18 Rafales from Dassault and the Hindustan Aeronautics limited(HAl) was to manufacture the remaining 108 planes in India. The cost of the MMRCA deal was pegged at more than 20 billion dollars and Parrikar said this price tag was steep and India could not afford it.