Fighter jets deal signals Indian procurement shift

New Delhi's decision to buy 36 "ready-to-fly" Rafale fighter jets from France has in effect ended commercial negotiations on the purchase of 126 aircraft direct from Dassault Aviation, India's defence minister has said.

Any future orders are also likely to come via the inter-governmental route after talks on the larger deal, potentially worth $20bn, became deadlocked over issues of technology transfer and price, said Manohar Parrikar.

"This had to be done to break the vortex," Mr Parrikar said of the government-to-government deal. "Instead of going through the request-for-bidding process, where there is a lot of confusion and chaos, it is now the situation that 36 will be procured, ready to fly."

Mr Parrikar did not declare an explicit end to the negotiations for the bigger deal but said any more orders would be placed direct with Paris rather than through talks with Dassault.

"What is to be done with the rest will have to be discussed," he said.

New Delhi stunned the global aerospace industry on Friday when it announced it had asked France to provide the 36 jets in an inter-governmental deal thought to be worth about $4bn.

The decision was a twist in the decade-long process to procure a new fleet of fighter jets through competitive bidding. The process specified that the selected foreign partner transfer technology to India's state-owned Hindustan Aeronautics Ltd, which would produce many of the aircraft in India.

In 2012 Dassault emerged as the low-cost bidder in the procurement contest, in which BAE Systems and its Eurofighter Typhoon consortium, Boeing and Lockheed Martin participated.

However, negotiations stalled over Dassault's reluctance to guarantee that aircraft made by HAL, a notoriously inefficient state enterprise that a former US ambassador once described as an "untested and suspect" potential partner for an advanced weapons system.

New Delhi's decision to buy just two squadrons made entirely in France - advocated by an increasingly impatient Indian air force - has been vociferously criticised by defence experts.

Ajai Shukla, a strategic analyst, wrote in the Business Standard on Tuesday that the decision was a "knockout victory for Dassault" that would weaken India's position in subsequent talks with defence suppliers.

Analysts say the deal appears to undermine fatally the ambition of Narendra Modi, the prime minister, to develop an indigenous aerospace manufacturing capacity.

Bharat Karnad, a strategist with New Delhi's Centre for Policy Research, said the a decision to order two squadrons direct from France was a "regression" that appeared to take New Delhi "back to the ad hoc procurement policies that ended up making India the largest arms importer in the world".

However, the new order is not yet complete. Mr Modi said officials would begin negotiations on the final details soon.

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