4 Months After PM Intervened, Rafale Deal in Trouble: Report

New Delhi: India's order of 36 French-made Rafale fighter jets has run into trouble with government officials struggling to agree on sales terms, sources said, four months after Prime Minister Narendra Modi intervened to break a logjam in previous commercial negotiations.

Two senior defence officials told Reuters that both sides were wrangling over the unit price of the aircraft and a condition that planemaker Dassault Aviation invest a big percentage of the value of the multi-billion dollar contract in India.

The problems threaten to further delay the modernisation of India's ageing air force.

Military officials have warned of a major capability gap opening up with rivals China and Pakistan without new Western warplanes or if local defence contractors cannot build what the military needs in a timely manner.

The PM and French President Francois Hollande announced the government-to-government deal for the sale of the off-the-shelf Rafale fighters on April 10.

That followed three years of commercial negotiations with Dassault for 126 aircraft that stalled due to disagreements over assembling most of the aircraft in India.

Citing India's urgent defence needs, the Prime Minister chose to deal directly with Paris for a smaller order, saying officials would work out the details.

On May 16, Defence Minister Manohar Parrikar told local media that negotiations over pricing would be finished in a "month or two".

But those talks were bogged down over India's insistence on a lower price for the frontline warplanes than the roughly $200 million each that was discussed with Dassault during the commercial talks, said the two defence officials, who have been briefed on the new negotiations.

Under the previous proposal, Dassault was to assemble 108 of the aircraft in India, a move New Delhi hoped would help boost a high-tech local aerospace industry. There is no production in India in the new arrangement.

"Since there is no technology transfer, the price that was on the table during the commercial talks cannot stand," said one of the officials, who declined to be identified because he was not authorised to speak to the media.

The Defence  Ministry said negotiators were in talks to produce a draft agreement, but declined to give details.

A Dassault spokesman declined to comment, as did the French defence procurement agency.

The two defence officials said another sticking point is Delhi's standard requirement that arms makers invest a percentage of the value of any deal above $50 million in India.

In this instance, India wants Dassault to invest at least 30 percent of the contract value locally through activities such as the sourcing of components for future French operations, the setting up of manufacturing facilities in India or by providing high-tech job training, the officials said.

"This issue has become bigger than the procurement," said Amit Cowshish, a former financial advisor on arms purchases to the Indian Defence Ministry, who has been tracking the negotiations.

Complicating matters, the Indian Air Force (IAF) has reportedly asked for technical modifications so the latest weapons could be fitted to the jets.

The air force declined to comment, saying the deal was in the government's hands.

A domestic programme to build a light combat aircraft to form the backbone of the air force is 19 years behind schedule, with the first plane due for final operational clearance in March 2016.

Meanwhile, nearly 260 MiG 21 and MiG 27 Cold War-era fighter jets are due to be phased out in about eight years.

"Even with the entry of the Rafales, the air force has reconciled itself to depleted aircraft strength over the next decade," said retired air vice marshal Kapil Kak.