The chances of the $10.4-billion, 126 Medium Multi-Role Combat Aircraft (MMRCA) deal making any headway over the next two years seem remote. One, in the run-up to the Union Budget, the government may not risk expanding its deficit. Two, 2014 being an election year, the government may shy away from taking a tough decision.
Despite assurances from the government that funds will not be a constraint to modernisation of the armed forces, defence minister AK Antony recently lamented he was struggling to get even the allocated grants of R1.93 lakh crore, let alone seeking an additional R45,000 crore to buy weapon systems to maintain operational preparedness.
His statement came in the backdrop of the government cutting more than R14,000 crore out of the total capital outlay of nearly R80,000 crore meant for procuring weapons and meeting contractual obligations.
The MMRCA contract, which is both commercially and politically complex, is not expected to be concluded this fiscal. The most difficult aspect of this deal is the offsets contract; negotiations with the French Dassault company have not been concluded yet, officials told FE.
The negotiations for the offsets are very complex and there is no way they will be completed even if the ministry of defence scrambles to seal the deal in the next four months, sources added.
In the MMRCA deal, where 50 % offsets are expected, efforts are needed to get key technologies from selected vendors of components, such as the AESA Radar, single crystal blade and special coatings.
As reported by FE earlier, the French appear reluctant on technology transfer. Until a few months back, tall claims were being made about almost 100% technology transfer. However, in a sharp turnaround, the opposite message is now being communicated.
According to a report in a French business publication Usine Nouvelle, high-end technology will remain in France and French companies will retain a clear majority of jobs linked to production of the aircraft. This throws into doubt Dassaults intention or ability to meet 50% offset requirement of MMRCA.
Interestingly, while the French are reluctant to transfer technology, they claim that the Indian industry is lacking the capability to absorb advanced technologies. Indian companies are reportedly far from mastering the technical complexity for producing components such as the electronic equipment of the Rafale. The French are reportedly bargaining hard for sharing the minimum amount of technology with India, while, at the same time, pushing for escalation