Kitna deti hai? (What’s the mileage?) – This is the ultimate question for any Indian in the market for a transport vehicle. So, why should it be any different when the Indian government goes shopping for fighter jets?

What are Rafale Jets?

Rafale is a twin-engine medium multi-role combat aircraft, manufactured by French company Dassault Aviation. Dassault claims Rafale has ‘Omnirole’ capability to perform several actions at the same time, such as firing air-to-air missiles at a very low altitude, air-to-ground, and interceptions during the same sortie. The aircraft is fitted with an on-board oxygen generation system (OBOGS) which suppresses the need for liquid oxygen refilling or ground support for oxygen production.

What is the Rafale deal?

  • It all started in 2001, the Indian Air Force sought additional fighter jets claiming that they had a lot of heavy and big jets but did not have any medium size fighter jets.
  • In 2007, A.K. Antony, the then Defence Minister of India (UPA Government) approved the process of buying a fleet of 126 medium multi-role combat aircraft (MMRCA). They started scouting for this aircraft across the globe.
  • In 2011, Indian Air Force declared that two aircrafts were shortlisted – Rafale Ltd and Eurofighter Typhoon.
  • In 2012, Rafale was finalized and was declared as the L-1 bidder and contract negotiations began with its manufacturer Dassault Aviation which is a French company. They finalized 126 aircrafts out of which 18 were to be bought in flying condition and 108 were to be assembled in India by Hindustan Aeronautics Ltd (HAL). The total deal was said to be worth Rs.54,000 crore which is approximately Rs.435 crore per aircraft.
  • In 2014, even after 2 years of finalizing the deal contract negotiations remained incomplete due to a lack of agreement on various terms of RFP compliance and cost related issues. Transfer of Technology remained the primary issue of concern between the two sides.

Hence, there was no deal under the UPA Government. Then, the UPA government was overthrown and the Modi government (NDA) came to power.

  • On 10th April 2015, Shri Narendra Modi during his visit to France made a declaration that he would be purchasing 36 rafale jets from Dassault Aviation in a government-to-government agreement. After the announcement, questions were raised by the Opposition on how the PM finalised the deal without approval of the Cabinet Committee on Security.
  • On 23rd September 2016, India and France signed a deal for 36 rafale jets.
  • On 18th November 2016, Mr. Subhash Bhambe the then Junior Defence Minister stated in the parliament that the deal has been finalized and the approximate cost per aircraft at Rs.670 crore.
  • In February 2017, the contract deal was signed between India and a joint venture (JV) between Reliance defence and Dassault named Dassault Reliance Aerospace Ltd. (DRAL).  The agreement for 36 Rafale fighter jets was at a value of euro 7.87 billion, or about Rs 59,000 crore which is Rs.1640 crore per aircraft. The agreement also included a 50 per cent offset obligation, the largest-ever offset contract in the history of India. The main point of the offset agreement was 74 per cent of it had to be imported from India, which meant direct business worth around Rs 22,000 crore. The delivery of the fighter aircraft is expected to begin in 2019, with an annual inflation capped at 3.5 percent.


In November 2017, Congress alleged a ‘huge scam’ in Rafale fighter jets deal. They have been accusing massive irregularities in the deal, alleging that the government was procuring each aircraft at a cost of over Rs1,640 crore as against Rs 470 crore finalised by the UPA government. The party has also demanded answers from the government on why state-run aerospace major HAL was not involved in the deal. The party claimed that Qatar had purchased 12 Rafale fighter jets in November 2017 for USD 108.33 million per aircraft (Rs.694.80 crore). The Congress has also alleged the government was benefitting the Reliance Defence Ltd (RDL) through the deal as the company has set up a joint venture with Dassault Aviation to execute the offset obligation for the Rs.59,000 crore deal. Reliance Defence had no expertise in the fighter jets business and had never built an aircraft till date. The party also alleged Reliance Defence was formed just 12 days before the announcement of the Rafale deal by the prime minister on April 10, 2015. To make things worse on 21st September 2018, former French President Francois Hollande revealed that the choice to select Reliance Defence as the offset partner was made by the Indian government and France had no option but to go ahead with it.


Finance Minister Arun Jaitely claimed NDA government negotiated hard to keep the price of Rafale jets down by at least 20% per aircraft in its 2016 deal as compared with UPA government’s deal of 2007. He also accused the Congress of having seriously compromised national security by delaying the Rafale deal by over a decade and said the Congress and its President Rahul Gandhi were unaware of the Rafale deal facts. A document prepared by the ministry of defence and the Indian Air Force this year shows that the per unit price of Modi regime’s Rafales, after taking into account the cost of weapons, maintenance, simulators, repair support and technical assistance is Rs.1,646 crore while the ones negotiated for by the UPA would have come to Rs.1,705 crore. The aircrafts bought by NDA also has missiles such as the METEOR and the SCALP which were not included in the aircrafts bought by the UPA. Also, on 22nd September, Dassault Aviation the French defence manufacturing giant has refuted claims by former French President Francois Hollande and said that it was Dassault who selected Anil Dhirubhai Ambani’s Reliance Defence and not the Indian government.

How important is this deal to both India and France?

France: Rafale jets are currently being used mostly by France and also by Egypt and Qatar. Dassault is hoping that export of Rafale jets will help the company meet its revenue targets. India was the first country that agreed to buy Rafale, after it was used in Libyan airstrikes. If India inducts these jets in its military fold, other nations could express its willingness to buy Rafales. This will give a huge boost to the country’s economy.

India: India chose Dassault over its traditional partner Russia’s MiG. It also ignored U.S.’ Lockheed, at a time when India and U.S. were aiming for closer ties. Procurement of combat aircraft is long overdue for the Indian Air Force. Further delay can only make things worse. This deal is India’s biggest-ever procurement. In the effectiveness of the Rafale deal lies the future of other defence procurement.

(This artile has been written by Archit Zaveri, first-year student at SIMSREE)

Rupee Depreciation

On 18th August 2018, the Indian currency, Rupee witnessed the historic intra-day low of 70.40 before closing at a life time low of 70.15 per dollar. Aggravating the situation, on 27th August it hit a record closing low of 70.16.

Before we deep dive into “why the Indian Rupee is depreciating, what are its impacts & measures to control it”; knowing “Rupee depreciation & who fixes the value of Rupee” is vital.

Rupee Depreciation:

When Rupee becomes less valuable compared to U.S. Dollar, it is called as Rupee depreciation. It simply means that, more Rupee is required per dollar. In other words, buying dollar becomes costlier.
Example: One dollar costed for Rs. 49.45 in 2012 and as on 27th August 2018 it costs more. i.e. Rs. 70.16.

Who fixes the value of Rupee?

Most of the people think that either Indian government or RBI fixes the value of Indian Rupee. But in reality currency market decides its value. The Supply & Demand of Indian Rupee in the global currency market decides its value. If the demand of Indian Rupee is less relative to its supply, it will depreciate & if the demand is high relative to its supply, it will appreciate.

For example: Say, India is going through inflation phase (High prices of goods & services). To lower the prices, suppose RBI increase the interest rates (It is the amount charged to borrower by lender). As interest rates are high, people will be less keen to take loan to buy goods & services. Rather, they will be depositing more money into banks to get more interest returns. This will attract foreign investors to deposit their money into Indian banks. That means the demand for Rupee will increase & hence Rupee will appreciate. This type of system is called as Floating Rate System.

India has adopted “Managed Floating Rate System” to minimise the extreme fluctuations in the exchange rate of Rupee. That means if there is a sudden inflow or outflow of money, RBI will use its policies to maintain the steady exchange rate.

Reasons for Rupee depreciation:

In the recent past, number of events has reduced the demand of Indian Rupee in the currency market which led to the Rupee depreciation. Some of these events are:

Fall in currencies of emerging market peers:
The crisis such as Eurozone crisis, Turkish crisis has depreciated their respective currencies Euro & Lira. This has created an atmosphere of doubt and sowed the seeds of negativity in the minds of the investors. As a result, investors find it safer to invest in Dollar rather than any other currency or assets. Due to which demand of Dollar has increased tremendously leading to further increase of its price. As Dollar became more valuable its value in Rupee has gone up leading to depreciation of Rupee.

US-China Trade War:
Imposing 25% duties on about $34 Billion in Chinese machinery, electronics & high tech equipment including computer hard drives, LEDs on July 6, 2018, started the US- China trade war. This in turn resulted Indian Rupee to depreciate due to outflow of money from India which has been discussed in detail further. Due to higher import duties, Chinese manufacturers have increased the cost of selling products which has led to inflation in U.S leading to inflation striking a six-year high to fight inflation, U.S. Federal Reserve has increased the interest rates twice in this year due to higher interest rates investors are willing to deposit more money into banks, in order to earn more income. So, foreign investors has been pulling out money from Indian market & putting it into U.S. market which has reduced the demand of Indian rupee leading to its depreciation.

Impacts on Indian Economy:

Imports have become costlier:
As the value of Rupee has increased to 70.16, more rupee has to be paid to buy the same imports which could have been bought cheaper earlier.
Example: As on 28th August 2018, Oil (WTI) Price Per 1 Gallon is 1.21 USD. If this rate was same 1 year earlier when USD/INR was 63.80, we would have costed 77.198 Rs (1.21*63.80) Per Gallon. But as on 28th August 2018, it cost 84.89 Rs(1.21*70.16) Per Gallon. That means for the same amount of Oil India needs to pay more Rupees when currency depreciates.

Exports have become cheaper:
Due to plunge in Rupee price, exporters get more money per dollar.

The rise in Current Account Deficit (CAD):
A deficit on the current account means that the value of imports is greater than the value of exports. India’s CAD in 2017-18 was $48.7 billion. That means we are spending more on imports than we get from exports. This in turn reducing forex reserve we have which is leading India to ask for more dollars from foreign markets which in turns increasing dollars demand and hence depreciating Rupee value further.

The rise in fiscal deficit:
Fiscal deficit occurs when government’s expenses become more than its incomes. On March 2017, India’s external debt was placed at US$ 471.9 billion. Due to Rupee depreciation, the government will have to pay a higher amount (in rupees), to repay its debt (in dollars). This has increased the expenses & hence fiscal deficit.

The rise in Inflation:
Rising import prices along with rising crude oil prices will increase the retail fuel prices. This will have cascade impact (as fuel is required to transport goods & services) on every industry in turn increasing prices of goods & services. It will lead to inflation. According to RBI, for every 5% fall in Rupee, retail inflation will increase by 20 basis points.

Other Impacts:
Foreign education has become costlier. Foreign touring has become costlier.

Do we really need to be worried about this?

Moody’s, a credit ratings agency said that , “India is among the 5 countries which are least vulnerable to currency pressures amid strengthening of the US dollar, because of low dependence on external capital inflows”. Some of the reasons could be as follows:

In recent years, India has build-up its forex reserves which act as a buffer to mitigate external vulnerability risk. As on June 2018 India has around $410.07 billion of forex reserve. India has low dependency on foreign borrowings to fund its debt. India has managed to get funding through Equity inflows through FDI. Also Indian domestic finance market has created large savings which has lowered the dependency on external market & hence has mitigated the risk.

At present, Indian government & RBI should not worry about the Rupee depreciation but should worry about the volatility in the currency exchange rate. Stabilization of Rupee is more important. High volatility situation like Rupee being 69 one day and 71 the other day; creates Rupee more risky & fosters the negativity in the minds of the counter parties which do business with India. It becomes difficult for them to do long term business considering high volatility in the currency & also becomes difficult to track the Profits & Losses.

Way Forward:

RBI intervention in the Forex market is the short term solution. As we have discussed, when demand of any currency increases; that currency gets costlier. Using the same principal, RBI can sell dollars from its Forex Reserves and can buy more Rupees. As demand of Rupee increases it gets strengthened.
In long run, reducing dependency on imports & improving exports is the solution.

(This article has been written by Yogesh Kurle, a first year management student at SIMSREE)

Security Analysis and Portfolio Management

Hats off to course coordinators- Shrija, Harshal & Ninad for so efficiently co ordinating 16 presentations of excellent quality on the subject of Security Analysis and Portfolio Management taught by our HOD Finance Dr. Sangeeta Pandit Mam . They worked with diligence & maturity to ensure good attendance, class participation and learning. Many thanks to Finance Forum students for constantly tutoring students through their magazines, events, messages and bringing clarity to financial concepts and applications. Attached are the ppts, only snippets are attached, for sake of brevity detailed calculations and examples done in the ppts are not included. Summary of 16_student presentations