SOURCE: AFI
India’s pursuit of strengthening its air defense capabilities includes acquiring 114 multi-role fighter jets under the Multi-Role Fighter Aircraft (MRFA) tender. Dassault Aviation’s Rafale fighter jets are considered a leading contender, following the successful procurement of 36 Rafale jets for the Indian Air Force (IAF) in recent years. The critical question arises: would it be more economical to purchase additional Rafale jets in batches directly from France, or to manufacture them domestically in India?
This article explores the cost factors involved in these two options and offers a price comparison, considering inflation, upgrade costs, and long-term sustainability.
Direct Procurement from France
Direct procurement of Rafale fighter jets involves purchasing fully assembled aircraft from Dassault Aviation. For the initial deal of 36 Rafales, the contract cost India approximately €7.87 billion ($8.7 billion). This included weapon systems, maintenance packages, and training for Indian pilots and engineers. The per-unit cost of these Rafales was approximately $241 million, though this includes logistics, infrastructure, and a broader support package.
Given inflation and an increase in production costs, the price of procuring an additional 114 Rafale jets directly from France would likely rise. A conservative estimate suggests a price inflation of around 5% annually due to raw material cost increases, labor costs, and inflation in the defense sector. If we assume a deal for the 114 jets is negotiated in the next five years, with a 5% annual inflation rate, the cost per unit might rise to around $308 million per jet by 2028.
For 114 jets, the total cost would be approximately $35 billion by 2028, including weapons, infrastructure, and maintenance.
Manufacturing in India (Make-in-India Program)
If Rafale jets are manufactured domestically in India under the “Make-in-India” initiative, several cost factors come into play, including technology transfer, local assembly, supply chain establishment, and labor. While the per-unit cost of manufacturing could be higher in the initial stages due to setup costs and technology absorption, the long-term costs could drop as production stabilizes.
Dassault would need to transfer the technology and production knowledge to Indian companies. This process is expensive and time-consuming. Setting up production lines, training Indian engineers, and establishing a local supply chain would require heavy initial investments. Over time, domestic production might lower costs due to reduced labor and logistics expenses and increasing local content.
However, it’s important to note that initial production runs might see cost overruns as Indian industry gears up to meet the stringent requirements of defense manufacturing. Experts estimate that, in the initial phases, the cost per Rafale made in India could be around 10-15% higher than the cost of buying them directly from France. This could translate to around $340 million per jet in the first production batch.
But as Indian manufacturing facilities become more efficient, the cost per unit could gradually fall to $300 million per jet for subsequent batches but this jets will be of same config from day one so without factoring in any new upgrades.
The total cost for manufacturing 114 Rafales in India could be approximately $36.5 billion, including technology transfer, infrastructure, and local labor costs.
One of the significant advantages of manufacturing Rafale jets in India is the long-term benefits in terms of upgrades and maintenance. If India sets up its own production and maintenance facilities, the cost of upgrades for avionics, weapons systems, or engine improvements would be significantly lower. Having local expertise would allow the Indian Air Force to upgrade jets domestically without relying on Dassault for every minor modification.
While manufacturing in India might initially seem more expensive, it offers strategic advantages in terms of local job creation, long-term maintenance, upgrade capabilities, and reducing dependence on foreign suppliers. The price difference, around $1.5 billion, is relatively marginal when considering the long-term benefits of domestic production.
In terms of upgrades, Make-in-India could save an estimated 20-30% on future modification and maintenance costs, making it a more cost-effective option in the long run. Furthermore, local production would enable faster turnaround times for repairs and upgrades, boosting the operational readiness of the Indian Air Force.