Following India’s strong objections to the cost escalation, France has broadly agreed to review its decision but negotiations were still going on for calculating the price for the maintenance and life-cycle cost of the planes, the second official said.
India has been insisting that at least 30-50% of the value of the contract be sourced from Indian companies, while Dassault wanted to lower that percentage, saying Indian firms do not have the capacity to supply that quantity of parts, the official said.
India revised an offset policy for procurements of arms last year, and specifies that defense contract over 3 billion rupees must plough back at least 30% of the contract value into India as offsets.
Since 2007, Indian companies have secured sourcing contracts worth more than $4 billion under this policy.
“The contention is also over the pricing - you can put different value to hardware, services including transfer of technology,” said the first official, who declined to be identified because of the sensitivity of the issue.
Hollande, accompanied by ministers and corporate delegates, is likely to discuss the sale of nuclear plants to India and investment in other sectors, India’s Foreign Ministry said.
Under the Rafale deal, Dassault is expected to send 18 ready-made jets, then manufacture the rest in India.
India expects the deal will provide business of $4 billion to $5 billion to Indian companies, said the second ministry official, who has knowledge of the talks.
Both officials said another contentious issue in the negotiations was the selection of India’s state-run Hindustan Aeronautics Ltd (HAL) as partner of Dassault to manufacture planes in India.
Rafale has expressed doubts about the technological capability of HAL to manufacture such a sophisticated fighter jet, the official said. A HAL program to manufacture advanced jet trainers is running years behind schedule.