NEW DELHI — Under an offsets deal reached by India and France regarding the acquisition of 36 Rafale fighter jets, France has agreed that it will fulfill its obligations only within the aerospace arena and not partly through research and development projects, an Indian Defence Ministry source said.

India and France have reached agreement on discharging offsets in the proposed acquisition of government-to-government (G2G) deal to buy 36 Rafale Medium Multirole Combat Aircraft for the Indian Air Force, (IAF), but only after the French agreed to India's condition that all the offsets, amounting to around US $5 billion, will be fulfilled only in the general aerospace category as against the French request to allow a portion of the offsets to be fulfilled in research and development (R&D) projects, said an Indian Defence Ministry source. in the Ministry of Defence (MoD).

With a final agreement reached coming through on offsets, India and France are likely to sign a protocol agreement by the end of this month to buy 36 Rafales for IAF and thereafter the price negotiations will follow, leading to a signing of the final deal in the next four to six months, the MoD the source added.

Ever since Indian Prime Minister Narendra Modi announced in his April visit to Paris that India intended to buy 36 Rafales on a government-to-government (G2G) basis, talks between India and French were stuck on the issue of offsets, with the French initially not agreeing to discharge offsets at all.

India wants 50 percent of the total amount of the deal, estimated to be around $10 billion for 36 Rafales, including weaponry, to be matched fulfilled by offsets involving purchases from the Indian aerospace sector, including tie-ups and cooperation with between domestic defense companies to boost India's the defense production base.

The French wanted 20 percent of the 50 percent offsets to be discharged through R&D tie ups with India's Defence Research and Development Organization (DRDO), but the MoD rejected their request, the source added. The list of R&D projects in which where the French had evinced interest to participate is not known.

But Dassault Chairman Eric Trappier said, "We are working with the Indian authorities on the offsets. Nothing has been decided. We are following the Make in India program. It's going in the right direction. Talks are still continuing."

The French Defense Ministry declined comment.

"The offset policy of 2012 allows offset obligations to be discharged through collaboration with DRDO, subject to some conditions. However, offsets are best undertaken through collaboration with industry, for direct impact on defense manufacturing. This may be the reason for the MoD's mod position," said Vivek Rae, MoD's former director general of procurement.

"It is not a good idea to discharge all offsets through DRDO." Major portion

"A G2G contract is a customized contract. So the two countries can agree to a unique set of terms of conditions, but these have to be mutually acceptable. While doing so, neither party can completely overlook the laws, regulations, procedures and precedents," said Amit Cowshish, MoD's former additional financial adviser.

India typically allows companies to discharge offset obligations through participation in R&D projects along with the direct purchase of equipment and systems in designated areas from the Indian industry, and training.  to be eligible for discharging offset obligations by overseas defense companies.

The G2G deal on Rafale was a separate deal to the 2007 request for proposal, which has since been canceled. Under the 2007 RFP, India was to procure 126 Rafales with 108 being license-produced in India.

MoD's top acquisition body, the Defence Acquisition Council, on (DAC) Sept. 1 gave the go-ahead to the negotiation committee on purchasing Rafale jets for the Indian Air Force. With an agreement on offsets now reached, the Rafale G2G deal has only to get past the price negotiations before being inked. ends


Vivek Raghuvanshi is the India correspondent for Defense News.

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