N Ram Tells Why Buying 36 Rafale Jets Raised Price of Each by 41%

The report claims that the decision to buy 36 jets instead of 126 led to an increase in price of each jet by 41%.

(Photo: Altered by The Quint)

The investigative report in The Hindu which has claimed that the Modi government’s decision to buy 36 Rafale jets instead of 126 led to an increase in the price of each jet by more than 41 percent has added a new dimension to the ongoing debate on the Rafale deal.

The report suggests that the hike in price was caused due to “government’s acceptance of the cost of €1.3 billion claimed for the ‘design and development’ of 13 India Specific Enhancements (ISE).”

The distribution of this ‘non recurring’ cost got distributed over 36 jets, as opposed to 126, which resulted in the prices going up, the report says.

Speaking to BloombergQuint about the report, its author and chairman of The Hindu Publishing Group N Ram said they took a close look at the claims of the government and the cost.

“So the simple argument is – it relates to economies of scale. If you have 126 , if it’s a non-recurring fixed cost, then it’s shared, much more reasonably. But if you’re buying only 36 aircraft and they still insist on this non-recurring or fixed amount, which I would say is highly exaggerated or extortionist even, I think then you’re (striking) a bad bargain for India. That’s the argument.”

N Ram to BloombergQuint

How Are the 36 Rafale Jets Brought by Modi Govt 41% Pricier?

The Hindu report, which quotes ‘official documents’, a 23 July 2018 press conference of Law Minister Ravi Shankar Prasad and a 13 November 2018 interview of Dassault Aviation CEO and Chairman Eric Trappier on pricing details, says that the price of each jet went up from 90.41 million euros in 2007 to 127.86 million euros in 2016 – an increase of 41.42 percent.

In 2007, when the then UPA government floated a tender for 126 Rafale aircraft, the report says the cost of each jet in flyaway condition was quoted at €79.3 million, which went up to €100.85 million by 2011, due to escalation cost factor. Out of this, 18 were to be received in flyaway condition while 108 were to be manufactured in India.

However, in 2016, the NDA government obtained a 9 percent discount for the 36 Rafale jets it was buying from France through an Inter-Governmental Agreement, which brought the price per aircraft down to €91.75 million.

But, that’s not all. The Air Force had asked for 13 ‘India Specific Enhancements (ISE)’ in the aircraft, for which Dassault asked for a cost of 1.4 billion euros. The NDA government negotiated to bring this down to 1.3 billion euros.

However, the government was now procuring 36 aircraft and not 126. So the ‘design and development cost’ shot up from €11.11 million per aircraft in 2007 to €36.11 million when the deal got finalised in 2016.

(Photo: The Quint)

Read the full lowdown of The Hindu report here.