Fasgaya – Rafale Pricing:

25 JANUARY 2019

  

UPA would have spent for 126 jets:

126 x + y +z.

NDA would have spent for 36 jets:

36x + y + z.

The excess paid = 126x +y+z –(36x + y +z) = 90 x.

By paying this 90x additional, UPA would have got 90 more jets.

You can always get a basic jet for x. Even NDA would get this price for a basic jet. If they want to get with India specific additions they have to pay y in addition to x per jet, whether it is NDA or UPA. The one time design and development charges will have to be paid whether you buy just one jet with india specific additions or one thousand! So the charge that NDA paid more per jet is ridiculous and based on not understanding the one-time fixed nature of design and development costs as different from the variable costs associated with the basic jet and the india-specific rrquirements.

Now y, the additional cost to be paid for every jet based on the materials used and labour incurred for the India specific features would have changed between the UPA’s time and NDA’s time because of change the number or type of specifications, change in raw material used and inflation whether or not raw material used changed.

Here is where Govt. has clarified that it is cheaper than what UPA had negotiated (but not placed an order, so it is in a way hypothetical.) The cost ‘increase’ by dividing z – the one-time design and development charges by distributing it over 126 and arriving at a lower cost per jet and dividing by 36 and arriving at a higher cost per jet is fictitious as we are not going to pay z for any additional jet of the same configuration we may decide to buy from Rafale. This logic of per jet costing is done either because of ignorance of not knowing the difference between one-time fixed and per jet variable costs or because of motivation from some quarters or both and the damage it does is to mislead the public with a factually wrong information.

Frankly we did not expect such a goofe from the Hindu.