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SOURCE: SHAILJA KANT UPADHYAY / FOR MY TAKE / IDRW.ORG

We all are seeing the shifting goal posts in the media from one accusation to another regarding the Rafale deal, when one tries to answer one, people shifts the goal post to another with other accusation, the latest addition to it is the number as to why government is buying only 36 instead of 126 when they have got the aircraft 9% cheaper and package 20% cheaper. However the thing that the simple people of India do not know is that the 36 Rafales ordered in fly away condition is double of the then the earlier 18 to be ordered in MMRCA tender.

Now the genuine question that comes in the mind is that what is the difference is between the Indian assembled 108 aircraft and 18 or 36 fly away aircraft. The answer is nothing, once inducted in the air force but from defence procurement, tendering and commercial perspective the difference is more than the difference between sky and earth.

The main difference is that that in the fly away condition the main vendor or contractor is foreigner while in the Indian assembled aircraft the main contractor to which order will be placed is Indian vendor which then pays for kits and license fee to OEM (HAL in case of MMRCA) and the difference lies between method of placing orders and payment mechanisms. That is why from 70s on wards no more then 50 aircrafts were ordered in a the fly away condition from OEM in a single go (contract).

According to international norms, practices and as well as DPP chapter 2, appendix L, schedule I, para 1.3.1 and para 1.4.1 page 157, while placing order for to both Indian or foreign vendor, an advance payment of about 15% of the total contract value is to be made while signing the final contract

But the difference lies between the mode and currency of payments. According to page 157, chapter 2, appendix L, schedule I para 1.2, the payments to foreign vendors are done in Dollars/Pounds (foreign exchange) while the payments to Indian to Indian vendors are done in Indian Rupees. This is one of the main reason due to which no developing economy like India do not place large scale order of off the shelf equipment as they cannot afford to let foreign exchange of this amount go out of the economy at one go. This may jeopardize already fragile current account deficit (CAD) for atleast next 5-7 years especially in the backdrop of raising oil prices, global trade war and looming sanctions on very important oil supplier to India that is Iran.

But the difference lies between the mode and currency of payments. According to page 157, chapter 2, appendix L, schedule I para 1.2, the payments to foreign vendors are done in Dollars/Pounds (foreign exchange) while the payments to Indian to Indian vendors are done in Indian Rupees. This is one of the main reason due to which no developing economy like India do not place large scale order of off the shelf equipment as they cannot afford to let foreign exchange of this amount go out of the economy at one go. This may jeopardize already fragile current account deficit (CAD) for atleast next 5-7 years especially in the backdrop of raising oil prices, global trade war and looming sanctions on very important oil supplier to India that is Iran.

So how to increase the numbers to make Rafale logistically viable

To counter the above problem, international practices as well as DPP allows you to insert a follow on clause in the contract, which can be exercised in a given time frame of future to order additional number of platform/ equipment already purchased on the conditions and cost negotiated in the earlier/ original contract

This clause has been always part of almost all deals concluded in last 10 years irrespective of the governments (UPA or NDA) and this follow on purchase clause is also there in the IGA signed between India and France in 2016 to increase the number at a later stage.

Recently in the following deals, the government has exercised the follow on clause:

  1. Ordering of 4 additional P8I in addition of existing 8 P8I ordered in 2009-10.
  2. Ordering of 6 additional Apaches for army in addition of already ordered 22 for IAF in 2015-16.
  3. Ordering of 6 additional C 130J in addition of already existing 6 C 130J ordered in 2009-10.
  4. Ordering of 1 additional C 17 in addition of existing 10 C 17s ordered in 2009-10.

The Sukhoi Story:

We all know that the IAF is going to have a total number of 272 SU 30MKI in its inventory (if HAL doesn’t crashes some of them before delivery (yes, HAL too crashes aircraft) ) but let us see the induction process of it, we can relate it to the present to get the idea of why just 36 has been ordered in one go, although earlier also 2 squadrons each Mig 23, Mig 29 and Mirage 2000 has been ordered by India at different point of time to meet emergency gaps, but let us stick to Su 30MKI story to understand the number games.

Around 1996 only 50 Su 30MKI in fly away condition has been ordered by NarsimhaRao government because as told above, foreign vendors are paid in precious foreign exchange and no developing economy can afford to transfer this huge amount of foreign exchange out of economy at one go due to fiscal issues and rise in current account deficit problems

It was only in 2000, after whole gap of almost 5 years, agreement for local assembly for 140 Su 30MKI at HAL (in 4 separate contracts with HAL)was signed by then AtalBihariVajpai of NDA I, taking the numbers to 190. Again in 2006-07 another 40 aircraft were were ordered by UPA I, there higher price tags, almost twice of the actual price lead to speculation that these aircrafts are ordered for strategic force command with strengthen circuitry etc to withstand high nuclear explosion and return back, for taking over the nuclear delivery role from Jaguars (but the plan failed due to reliability and serviceability issues of HAL built Su 30s). Another 42 aircrafts were ordered to arrest the decline of squadron strength of IAF in 2012 as the MMRCA process was also strucked taking to the total SU 30 aircraft numbers to 272.

It must be noted that a total of 7 orders (one with Russia and 6 with HAL) spanning 20 years were placed to induct a total of 272 SU 30MKI aircrafts and initially only 50 aircrafts were ordered in fly away condition and some social media warriors and opposition wants to induct 100s of foreign made aircrafts in fly away condition tomorrow only.

It must be noted that 50 Su 30MKI aircrafts ordered in 1996 in fly way condition with around 50% serviceability (comman with Su 30s around 2010) takes the total effective numbers to 25 while the 36 Rafales aircrafts with 75% serviceability takes the total effective numbers to 27 which is higher than the effective numbers of Su 30s. Hence it can be said that the government has ordered a decent numbers of aircrafts at one go which is effectively better than the numbers ordered by previous governments.

It must be also seen that the government and IAF is spending around 30% more on HAL built SU 30s despite of fund crunch in the name of saving foreign exchange and building domestic ecosystem, but on the same time there reports has HAL has shamelessly brought several SU 30s from Russia and delivered to IAF like a middleman to recover the delays in delivery of HAL built SU 30s despite of several concessions given to HAL regarding production by IAF, thus defeated the above two purposes (it must be noticed that Russian SU 30 costs around 330 crores but HAL takes around 415 crores for each ).

 

Amid Rafale row, HAL’s 3-year delay in Sukhoi rollout raises concerns; company says delivery on schedule

Several times has delivered brand new SU 30s fitted with old/used engines or leased engines from IAF inventry because of delays in the production target of new engines by its engine division. May be that is the reason of recently crashing of brand new SU 30 by HAL and poor serviceability of SU 30 fleet.

https://www.deccanchronicle.com/nation/current-affairs/100417/flying-coffins-in-making-second-hand-engines-used-in-sukhois.html

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