India’s Reliance Group and France’s Dassault have signed a lucrative defence partnership as part of a fighter jet deal agreed between the two nations last month, the companies said yesterday.
India signed a contract to buy 36 Rafale fighter jets for €7.9bn ($8.8bn), France’s biggest ever such sale, as the nation seeks to bolster its military in the face of China’s growing clout.
Dassault, which is building the aircraft, agreed under the terms of the deal to invest about 50% of the value of the contract in India.
It has teamed with Indian billionaire tycoon Anil Ambani’s Reliance Group in a joint venture called “Dassault Reliance Aerospace” to focus on research and development of unspecified defence projects in India.
The partnership “illustrates our strong commitment to establish ourselves in India and to develop strategic industrial partnerships under the ‘Make in India’ policy promoted by the Indian government,” Dassault CEO Eric Trappier said in a joint statement.
Ambani added that the deal was “a transformational moment for the Indian aerospace sector.”
However, the companies did not say how much of Dassault’s estimated Rs300bn ($4.5bn) required investment would be poured into the joint venture.
Reliance said the offset contract is India’s biggest ever.
Ambani, whose Reliance has virtually no experience of defence manufacturing, hopes to turn his company into a major defence firm over the coming years.
The agreement with Dassault is a bet that Reliance can build manufacturing facilities at a site in Nagpur to feed into Dassault’s supply chain, or for future Indian government orders of the Rafale jet.
The partnership will also focus on promoting research and development projects under the Indigenously Designed, Developed and Manufactured programme - a new initiative of India’s Defence Minister Manohar Parrikar.
Senior executives said in May that Reliance had bid for Rs840bn in government contracts, but was yet to win any.
India, the world’s top defence importer, is conducting a $100bn upgrade of its Soviet-era military hardware, facing border disputes with its northern and western neighbours, China and Pakistan.
But Prime Minister Narendra Modi has moved to reduce India’s reliance on expensive imports and called for the manufacturing of defence equipment locally.
Modi’s government has raised the limit on foreign investment in the defence sector and encouraged tie-ups between foreign and local companies.
The Rafale purchase was first mooted in 2012 but has faced major delays and obstacles.
India entered exclusive negotiations on buying 126 Rafale jets four years ago, but the number of planes was scaled back in frustrating negotiations over the cost and assembly of the planes in India.
Modi announced on a visit to Paris last year that his government had agreed in principle to buy the jets.
But the deal continued to be held back by disagreements such as Delhi’s insistence about a percentage of the contract being invested in India - known as the offset clause - before it was eventually signed in September.
Dassault, till date, has delivered more than 8,000 military and civil aircraft to more than 90 countries over the past 60 years, with nearly 28mn flight hours.
It reported revenues of €4.20bn last year.
Dassault first established itself in India after the sale of Mirage 2000.
Its Rafale was chosen by India in 2012, following a competitive bidding process that was initiated in 2007.
It was inducted by the French Navy in 2004 and then in 2006 by the French Air Force.
As on June 30, 2016, 152 Rafale aircraft had been delivered.
Other Indian companies with an interest in defence and aerospace include Tata Group, Mahindra Group and Larsen & Toubro Ltd.