High Transfer of Technology Costs Made UPA’s Rafale Deal Much Cheaper than NDA's

Questions surrounding costs associated with technology transfer, India-specific enhancements and the Eurofighter's offer still remain.

There is no answer yet to one key question regarding the Rafale fighter jet deal which was indirectly raised by the recent expose by N. Ram in The Hindu.

The UPA’s 126 aircraft involved technology transfer as an essential part of the project. There is a considerable price India would have paid for technology transfer. Technology absorption and indigenisation doesn’t come free. There is a big cost attached to it. So, the price that India would have paid for tech transfer was embedded in the price of 126 aircraft that the UPA had proposed to buy.

This cost would also have been proportionately added to the 18 Rafale jets which would have come in fly-away condition from France.

However, the 36 Rafale jets bought by the NDA in fly-away condition does not include the transfer of technology (ToT) costs. Therefore, when we compare the per aircraft cost of 36 jets contracted by the NDA with that of the 18, which UPA would have bought in fly-away condition, it is necessary to reduce the cost of technology transfer/indigenisation embedded in the price of 18 Rafale jets.

Also read: Modi Govt’s Rafale Deal Was 40% More Expensive Per Aircraft Than Dassault’s Earlier Offer: Report

If this is done, the price of per aircraft under UPA may fall sharply. This exercise has not been done by anyone, not in the least the government which is trying to hide these facets of the deal.

If the cost of tech transfer is removed from the UPA deal, then the price per aircraft for 18 jets should become much cheaper than what is being paid by NDA per aircraft. It is this aspect of the price difference – and a considerable one at that – which is still shrouded in mystery.

The price difference per aircraft between the UPA and NDA deal would really widen way beyond the 14% arrived at by The Hindu’s investigation. Defence analysts say if the cost of technology transfer is removed from the UPA deal, then the NDA deal per aircraft could get even costlier .

“There is a considerable cost incurred on technology transfer as entire teams of foreign manufacturing companies spend some years to help transfer the technology to local manufacturing. In the case of Rafale, the India specific enhancements would cost a lot to indigenise,” says Sudhanshu Mohanty, former Secretary-Defence Accounts, who examined costing aspects of the deal before retiring in 2016. 

The Hindu’s article also raised the issue of how Rafale’s rival bidder, Eurofighter, had made a fresh offer to NDA which was 20% cheaper. Mind you, even this cheaper offer included transfer of technology as it was made against the UPA’s 126 aircraft deal. Mohanty says the government could have used the Eurofighter offer to beat Rafale further down, if nothing else.

Also read: Yashwant Sinha, Arun Shourie, Bhushan: Rafale Deal Caused Great Loss to Exchequer

So, when Modi decided to jettison the transfer of technology factor from the new deal to buy 36 aircraft in fly-away condition it was incumbent on the PMO to ask what would rival fighter jet maker Eurofighter have paid for a similar configuration without tech transfer. This was not done.

So naturally it has become impossible – in the absence of credible data and information – to compare the price of a Rafale jet with and without the cost of technology transfer embedded in it.

The Hindus article also raises the issue of amortisation cost of the 13 India specific enhancements specially being built by Rafale in France, which costs €1.3 billion. In one case, €1.3 billion is spread across 36 aircraft and in the UPA deal it is spread across 126 aircraft and also across 50 follow-on jet purchases at a later stage. This cost difference also remains largely unexplained as the NDA government removed the follow-on offer clause. This means in any follow-on purchase of the same fighter jet, India will pay a much higher cost for India specific enhancements than seen in the UPA deal.

Also read: Rafale Deal: The Mystery of the 3-Billion-Euro Price Hike

Another important question arises. If tomorrow, Rafale again participates in a bid floated by the defence ministry to acquire MMRCA fighters, will India end up paying a higher fixed cost per aircraft – based on the earlier deal for  36 and not 126 – for India specific enhancements? These are troubling questions which will not go away in the face of extreme non- transparency in the deal.

In one sense, Rafale has a clear advantage over other MMRCA bidders in future as it already has built the India specific enhancements for the country. They are already developing the know-how and the necessary infrastructure in France for India -specific enhancements .

Mohanty says it would have been much better if these technologies were developed in India with HAL. That would have truly bolstered national security in future.