The move is considered as the first major push under 'Make in India' category in defence sector.
The multi-billion deal for 36 Rafale fighter jets could see French defence major Dassault Aviation entering into a joint venture with state-run HAL or any private player to set up a base here for augmenting its existing production line.
Defence sources said such a step, if taken will not only allow the French firm to ramp up its production rate but will help it to meet offset obligations in India, likely to be 30-50 per cent of the sales value.
Considered as the first major push under ‘Make in India’ category in defence sector, the approach will also mean that the French company would stand a better chance in case the Indian government decides to go for more Medium Multi-Role Combat Aircraft later than the initial 36 agreed.
It will allow Dassault Aviation to set up manufacturing facilities in India to augment its existing production line in Merignac in France under a joint venture with HAL or a private player of its choice. From the operation and sustainment perspective also, creating of these facilities will help the IAF, the sources said.
These issues among others would be discussed during the forthcoming visit of French Defence Minister Jean-Yves Le Drian on May 6 with his Indian counterpart Manohar Parrikar and National Security Advisor Ajit Doval, they said.
The Minister is flying down on May 5 from Qatar to firm up the modalities as India wants the fighter aircraft as soon as possible.
“This visit will focus on firming up the broad parameters for the deal under which the contract would eventually be inked,” the sources said.
French sources said they “are open to any idea” but insisted that nothing has been fixed as yet.
“We will have to see how the meeting will go and then get a feedback to actually decide what can be done. We are open to all ideas. Something will have to be done,” they said when asked about the plans for a joint venture.
The production rate of Dassault Aviation for Rafale stands at about 1 aircraft per month. However, the company has bagged three major contracts this year totalling to 84 aircraft, all of which have to be delivered fast.
The latest contract to be won by Dassault was from Qatar for 24 Rafale fighter jets and MBDA missiles.
Last month, India and France had agreed to get into a government to government contract for 37 Rafale jets in fly-away condition to be delivered keeping the critical requirement of the Indian Air Force in mind.
In February, Egypt had become the first foreign buyer of Rafale with a contract for 24 aircraft. Also, the orders of the French Navy are pending.
While all the three deals are under government to government contract, contours of the agreement in case of deal with India are still unknown as this would be first such deal between France and India in defence.
Both in the case of Egypt and Qatar, government to government contract provides for an umbrella cover whereas the actual contract is between the respective MoD and Dassault Aviation.
“This ensures necessary guarantee to the buying government from the French government with regard to price, delivery and quality. At the same time it allows flexibility to Dassault Aviation to have necessary commercial arrangements in place to meet the contractual obligations,” the sources said.
It is expected that the Indian Defence Ministry will also follow a similar model, something that the French would be keen for.
Parrikar had said all future negotiations for purchase of French Rafale fighters would be through government to government route.
He has also said further negotiation will decide if In. and if so, the number of it.
Under the original deal, 18 Rafale jets were to be bought off the shelf while 108 were to be manufactured by state-run Hindustan Aeronautics Limited (HAL).
The talks have been stuck over pricing and Dassault’s refusal to stand guarantee for the jets to be manufactured by HAL. The government has now decided to put aside the MMRCA contract.
The Request for Information for a Medium Multi-Role Combat Aircraft was issued in 2001 and a Request for Proposal was issued in 2007. Rafale was shortlisted in 2012.
Though the 36 Rafale jets would be a shot in the arm for the IAF, it will not be enough for the dwindling air power of the force.
Even though the sanctioned strength of the IAF is 42 Squadrons, it is currently equipped with only 35.
Adding to the trouble is the phasing out of the ageing MiG 21s and MiG 27s in the coming years. Their draw-down is scheduled to start in 2017.
The IAF has been banking on the Rafale, the indigenously developed Light Combat Aircraft ‘Tejas’ and the Fifth Generation Fighter Aircraft deal with Russia, but all the projects are running behind schedule.