SOURCE: AFI
In 2015, then Defence Minister Manohar Parrikar issued a stark warning regarding the escalating costs of procuring the Rafale fighter jets from French manufacturer Dassault Aviation. For over three years, Dassault had been negotiating with India’s Ministry of Defence (MoD) to sell the Indian Air Force (IAF) 126 Rafale fighters, but the talks had reached a standstill, mainly due to the high cost of the aircraft and concerns about the terms of local production. Parrikar emphasized the need for a cost-effective deal, signaling that India could not afford to ignore the financial burden of the acquisition.
During a press conference, Parrikar made it clear that the IAF needed to consider the financial aspect of its fighter jet procurement, stating, “It is not always… go and purchase it. A cost-effective purchase is also important.” Though he refrained from disclosing the exact costs being negotiated, he raised concerns about the impact on India’s defense budget. “Whether it is Rs 40,000 crore, or Rs 50,000 crore or Rs 1 lakh crore, we are speaking about 50 per cent of the capital budget of the defence services,” he pointed out, underscoring how the Rafale deal could potentially consume half of India’s defense capital budget.
Moreover, Parrikar expressed frustration with Dassault’s reluctance to meet key terms of the tender. The IAF’s initial proposal required Dassault to guarantee the 108 Rafale fighters that would be produced in India by Hindustan Aeronautics Ltd (HAL), after the first 18 jets were supplied fully built from France. Dassault was reportedly hesitant to take full responsibility for the quality and timeline of the HAL-produced fighters, which created a significant roadblock in the negotiations.
Parrikar was firm on this point, stating, “I have told (Dassault) to send a person to work out the (differences). You have to be clear that, irrespective of anything, the (tender’s) terms have to be met. They cannot be diluted.”
Following these protracted negotiations, the Indian government scaled down the initial plan of 126 fighters to 36 Rafale jets, which were purchased through a government-to-government deal between India and France in 2016. The cost for these 36 Rafale jets was approximately €7.87 billion (around Rs 59,000 crore at the time), which included the aircraft, India-specific enhancements, weaponry, and maintenance guarantees.
The decision to purchase just 36 fighters, rather than the originally envisioned 126, reflected the Indian government’s attempt to balance costs with capability. However, this deal came under intense scrutiny domestically, with critics raising questions about pricing, transparency, and the impact on India’s goal of building indigenous defense capabilities.
Fast forward to 2024, the Rafale Marine, the naval variant of the fighter jet, is now being considered for procurement by the Indian Navy. The pricing, however, remains a sticking point, as it will be based on the 2016 baseline price, adjusted for inflation over eight years. With inflation adjustments, the cost of the Rafale Marine is expected to be significantly higher than the 2016 deal, reflecting both global economic shifts and the additional enhancements requested by the Indian Navy.
This same pricing strategy has direct implications for the IAF’s Medium Multi-Role Fighter Aircraft (MRFA) tender, which seeks to procure 114 fighter jets. If the 2016 cost of the Rafale jets is applied, factoring in inflation and the cost of setting up manufacturing facilities in India, each jet could come with an even steeper price tag. The local manufacturing component, which is central to the MRFA deal, adds another layer of complexity, requiring Dassault to transfer significant technology and build assembly lines in India. These costs will drive up the final price considerably.
One of the most significant challenges in the 2024 MRFA tender is the cost of establishing local production facilities in India. While the 36 Rafale jets purchased in 2016 were fully manufactured in France, the MRFA tender calls for the majority of the aircraft to be produced in India. Setting up assembly lines, training workers, and ensuring the quality and reliability of Indian-made Rafales will require substantial investment, both by Dassault and its Indian partners.
This raises the question of whether the Rafale is still a cost-effective option for India in the long term, given the combination of inflation-adjusted prices and the high cost of local production. With the tender for 114 jets expected to exceed the budget allocated for the 36 jets in 2016, the overall cost could skyrocket, placing even more strain on India’s defense budget.
As India moves forward with the MRFA tender, Dassault’s Rafale remains one of the leading contenders, thanks to its proven performance in the IAF and its integration with Indian defense systems. However, cost considerations, as highlighted by Manohar Parrikar in 2015, continue to loom large over the deal.
India must weigh the strategic benefits of acquiring more Rafales—now a familiar and battle-tested platform for the IAF—against the financial burden of the deal. The IAF’s focus on modernizing its fleet is critical, but doing so in a cost-effective manner will be key to ensuring long-term sustainability.