India, Russia hammer out differences on arms deals

In a major breakthrough ahead of Defence Minister A K Antony's visit to Moscow beginning Tuesday, India and Russia have ironed out differences over cost escalation of armament systems.

In a deal, New Delhi has now agreed to pay an annual cost escalation of five per cent as against 2.8 per cent originally worked out on all arms contracts worked out with Russia earlier.

The deal, according to top defence officials, has paved a way for resumption of supply of fighters, warships, tanks and helicopters that had been held back.

The first major deal to be inked under the new cost escalation contract is for purchase of 40 new SU-30 MKI fighters. The new fighters would be supplied to India by 2010 and will bring the number of Sukoi aircraft in the Indian Air Force's inventory to 230.

Under the new deal signed in New Delhi on Friday by top officials of the Hindustan Aeronautics Limited and Russia's state owned arms agency Rosenbroexport, Russia has agreed to supply 40 Sukois in semi-knocked down kits at a cost of $1.6 billion.

By agreeing to new annual cost escalation of five per cent, India would now be paying whopping $5 billion for 230 Sukhois fighters, which currently are IAF's mainstay.

India, under a technology transfer agreement signed with Russia in 2000, is producing 150 Sukhoi fighters at HAL Nashik.

India has already floated its biggest ever defence tender for purchase of 126 multi-role combat aircraft at a huge cost of $10 billion. The first of these new MRCAs are also likely to enter service by 2010-11.

Russia, citing sharp drop in US dollar rate, has been demanding 18 per cent annual cost escalation.

Defence ministry sources said the same five per cent cost escalation will also hold good for contracts for other major armament systems like stealth warships, T-90 tank kits and admiral Groshkov aircraft carrier.

The understanding on cost escalation, which had led to some irritants in developing close defence ties between the two countries, comes close to the holding of the meeting of the joint Indo-Russians commission on military cooperation in Moscow from Tuesday.

Defence Minister A K Antony is leading the Indian delegation, which also includes defence secretary Vijay Singh.      

Antony had told PTI earlier that the issue of cost-escalation was being sorted out at number of official exchanges between the two countries.

During Antony's visit, India will also work out the issue of early supply of aircraft carrier Gorshkov and also ink a key agreement on joint development and production of a futuristic fifth generation fighter aircraft.