Wednesday, October 26, 2011

Biggest defence deal proposal okayed

The defence ministry on Friday approved the offset proposals for India’s biggest defence deal to buy 126 fighter planes at an estimate price of Rs 42,000 crore ($ 10.4 billion) paving the way for opening the commercial bids around Diwali.

Two European fighters – French Rafale and Eurofighter Typhoon – are in the fray after the first round of selection overtaking four other competitors including two US fighters. India wants to close the deal before March 31, 2012.

Indian Air Force chief N A K Browne, who attended Friday’s Defence Acquisition Council meeting, stated on Monday that the DAC meet is the last internal defence ministry meeting before the bids are opened by the third or fourth week of October.

Even though defence ministry officials are tight-lipped about the details of the DAC decisions, the panel headed by Defence Minister A K Antony is understood to have taken the final decision on the controversial offset issues associated with the medium multi-role combat aircraft deal.

Procurement norms

According to Indian defence procurement norms, 30 per cent of all foreign military purchases worth more than Rs 300 crore are reinvested in Indian defence industry to spur growth in domestic military industry. For the MMRCA deal, the offset was fixed at 50 per cent, which sparked resentment among the competitors.

This means the winning firm has to reinvest more than Rs 21000 crore in India, either alone or in partnership with an Indian company, in military, homeland security and civil aviation.

The offset proposals from Dassault Aviation (Rafale) and the Eurofighter consortium (Typhoon) were presented before the DAC by director general acquisition Vivek Rae.

Asked about the falling values of rupees on the MMRCA deal, Brown stated that availability of funds would not be a problem in realising the contract. Once a contract is signed, it will come under the category of “committed liability” of the government, for which provisions are made in the budget.

Subsequent to the DAC approval, the deal has to be cleared by the Finance Ministry and the Cabinet Committee on Security.

Together with Su-30 MKI, indigenous Light Combat Aircraft Tejas, Indo-Russian fifth generation fighter, the 126 MMRCA will be the mainstay of Indian Air Force in the coming decades.

The winning company is also likely to receive a follow-on order of 80 odd MMRCA.

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