The signing of the Rafale deal was finalized in the background of stressed relations with Pakistan sees India importing 36 jets in fly-away condition, citing “critical operational necessity” of the IAF. An even important feature of the deal is that Rafale will be delivering the aircrafts as complete deployable units with onboard arsenals.
The weapons with Rafale includes Meteor radar guided Beyond Visual Range (BVR) missile with range of over 150 kms and Scalp long range air to ground missiles.
The defence necessity of the deal is justifiable as the IAF is under armed in terms of operational aircrafts. The complete built in format with usable armory in fly away conditions indicates little time to incorporating into the forces.
At the same time, looking into the offset clause, the deal is quite unclear about the true nature of the offset clause. As per the present defence offset policy, there is a mandated 30 per cent offset in contracts valued above Rs 300 croes under “buy” and ‘buy and make” categories.
A full operation of the offset policy is practically difficult in urgent arm delivery deal like in Rafale. Still, Rafale contains a quite interesting offset clause and at the same time that warns the country for the urgent need of developing own production base in critical defence inputs.
Interesting offset clause
The offset clause of Rafale deal is a 50 per cent investment commitment from the French industry in India. Nearly 74 percent of the 50 percent offset value should be exported from India. This means that nearly 40% of the total deal amount of around Rs 24000 crores (total deal is Euro 7.87-billion or Rs 59,000 crore approx) should be in domestic value addition.
Besides the investment commitment, there is a six percent technology sharing component. Together these two, the deal may benefit a domestic offset of Euro 3 billion in seven years. But the investment component about a deal where aircrafts are delivered on flyaway mode necessitates further understandings about components sourcing.
The search for domestic manufacturing firms who can manufacture the components and the terms of the contract all need time and efforts in the process.
Altogether, the deal is a case study, that defence necessities may dilute offset policy requirements. The best option is to develop domestic capabilities in manufacturing as early as possible.