Indian Navy Finalizes Rs 36,000 Crore Deal for 3 More Scorpene Submarines with MDL, Cost Triples Compared to Earlier Batch

The Indian Navy is set to significantly expand its underwater fleet with the acquisition of three additional Scorpene-class submarines. A deal worth over Rs 36,000 crore has been finalized with Mazagon Dockyards Limited (MDL), with the contract expected to be signed by March 31st. This move comes as India seeks to bolster its naval capabilities amidst growing regional challenges.

This latest acquisition, however, has raised eyebrows due to the substantial increase in cost compared to the previous batch of Scorpene submarines. Each of the new submarines is estimated to cost around Rs 12,000 crore, nearly three times the price of the earlier submarines built under Project-75. Those vessels, also constructed by MDL in collaboration with France's Naval Group, were acquired for approximately Rs 3,500 crore each, with the total cost for all six amounting to Rs 21,000 crore.

Sources within the defence establishment have indicated that the higher cost can be attributed to several factors. The new submarines will boast 60% indigenous content, nearly double that of the previous batch, promoting India's 'Make in India' initiative in defence manufacturing. They will also incorporate design modifications, aligning them with the Scorpene class submarines being supplied to the Brazilian Navy, resulting in slightly larger vessels.

Despite these advancements, concerns remain about the significant price escalation. The deal, as it stands, does not include the cost of installing the Air Independent Propulsion (AIP) system developed by the Defence Research and Development Organisation (DRDO). This system, designed to enhance the submarines' submerged endurance, will further add to the overall expenditure.

The decision to procure additional Scorpene submarines was prompted by delays in Project-75(I), which aims to acquire six advanced submarines with AIP. These new submarines will serve as a crucial stopgap as the Indian Navy awaits the induction of its first indigenously designed nuclear attack submarine (SSN) by 2036-37.

This procurement underscores India's commitment to modernizing its naval forces and maintaining a credible deterrent in the Indian Ocean region. However, it also highlights the challenges associated with balancing ambitious defence requirements with budgetary constraints. The government's push for indigenization is evident, but questions about cost-effectiveness in the procurement process persist.

 

[Anant]

Very sad state. After assembling 6 submarines and India having expertise in developing 4 nuclear submarines (expect the propulsion part, other subsystems are nearly the same), still we have to shell out Rs 36,000 crore for three submarines with Indian AIP. We should close/sell to private players. Australia is not a fool to move away from the Barracuda submarine deal. We have other choices: go for simultaneous technology contract negotiations with Russian and German submarine manufacturers and scrap this deal. Go for outright purchase of Amur. We can't take this blackmail any further if this report is right.

Australia is in fact an idiot to go for nuclear submarines. Why? Well, here goes.

Firstly, they wanted SSNs to be a deterrent against China. In getting SSNs, they have themselves put themselves on a higher rung of China's nuclear doctrine. Their entire point about calling the submarines "nuclear-powered but not nuclear-armed" to try to reduce tensions is pointless, since the US still maintains nuclear warheads for the Tomahawk missile in storage.

Secondly, they decided to go for SSNs without figuring out where they would get the crews from. Australia faces significant manpower challenges, and the Attack-class (the version of the Barracudas they had on order) were to feature a significant level of automation which was to essentially allow the boats to be manned by roughly the same crew size as they have on each of their 6 Collins-class SSKs. A single Virginia-class SSN requires over double the crew of a Collins-class boat, which means that the Australians would have to increase their crewing by about 66% just to crew five SSNs, let alone the eight they plan.

3. The French had a delayed timeline for the Attack-class, sure. However, they would have been delivered. Instead, the Australians went for American SSNs, which are already facing significant delays in production. The Australians even invested in American SSN production, and this has had no noticeable effect so far. In fact, there are calls now that Australia might not even get new SSNs from the US, instead getting the four Block 1 Virginias in the late 2030s and early 2040s. That is a lot of money spent for a bunch of old SSNs.

4. No one in Australia has a decent idea of just how much these SSNs are going to cost, but even conservative estimates put the cost at somewhere in the region of 350 billion dollars over the next 30 years (which is about half of the service life of new SSNs if Australia did get them), and that number is projected to increase. Care to guess what the lifetime cost for the Attack-class was? Somewhere around 140 billion dollars.

5. As for the Amur-class, are you seriously suggesting we should go for a submarine that doesn't exist, one that doesn't have AIP, one that comes from a nation that has never built an AIP submarine or designed a new SSK in the last 3 decades? I hope for your own sake that you are kidding.

 

[abhinav srivastava]

Um, unless I am very significantly mistaken, the contract value for Indonesia is 2.1 billion USD, not the offset amount. That comes out to just over 1.05 billion USD per boat. This essentially gives them the ability to manufacture boats using certain imported subsections (similar to how we built the second pair of Type 209-1500s in the 1980s and 1990s), and gives them the expertise to refit the boats themselves.

Secondly, the Brazilian order has more nuance than a simple straight-line cost. Firstly, out of the 10 billion USD value, the four conventional submarines of the Riachuelo-class were set at about 1 billion USD each. Then, there is the plan to build a SSN based on the same design (though enlarged significantly). The ToT and partnership for the SSN was set to cost about 2.2 billion USD, with the SSN itself costing about 3.8 billion USD. All that adds up to 10 billion USD. Remove the SSN, and you have a per unit price of about 1 billion USD, which includes the price for modifications to the design as well as the premium for local manufacturing in Brazil.

Thanks for the details. For Indonesia some websites are mentioning 2.1 billion USD as offsets. Which are one third of the overall deal. Yes, that may be a wrong number unless there are some hidden aspects. Brazil had that deal in 15-16 years ago. 1 billion USD at that time will be lot more now.

 

[Sandeep]

This article has been written by a teenager with no knowledge about defence deals, contracts, economic and finances.

The 3500 crore was paid over 20 years ago so after adjusting it with inflation and at current foreign currency exchange rate and current rupee worth and value the price will obviously be more higher.

Also one shouldn’t compare this similar submarine defence deal with other countries around the world. Every country will have significant technology, equipment and capability differences and it will not be the same for all countries.

Also the reason why the price is high is not down to any murky or non transparent deals being made or India getting ripped off. Compared to the previous submarines we will be getting major technology, equipment, software, submarine systems and weapon upgrades and changes.

Also the amount and type of technology they transferred to us can certainly be used again and we can also increase the amount but for critical technology like engines or sonars it will obviously not be given to us which is why we still have to rely on France for providing it only. Another major addition is the DRDO AIP module which will be installed rather than a French one which is why it will need to be tested and integrated with the other technology and systems.

 

[kumar]

Probably for integration and certification of locally developed sub systems.

 

[AJS]

It’s a pity that the Indian Navy and MoD did not exercise the option to buy 3 more Scorpenes, at the same unit price as each of the initial batch of 6 boats. This option was part of the initial contract but was, most unwisely, allowed to lapse. Perhaps the Navy and Government felt at the time that Mazagaon Docks would be able to build further submarines on their own after the initial 6, having learnt from the experience and gained from the so-called transfer of technology (ToT). That has clearly not happened, and India is back to square one of having to buy more boats from the French for a vastly higher price (even after allowing for the depreciation of the Rupee and some design updates, the boats are some 20-25% more expensive). Unfortunately this so called ToT is an illusion as no OEM transfers any important technology because doing so would undermine their own commercial interests. Moreover, no Indian dockyard gains the necessary know how just by building foreign designed ships - the crucial skills of design and development are not gained that way. To gain them there is no other way that doing it yourself, step by step.

 

[abhinav srivastava]

Thanks for the details. For Indonesia some websites are mentioning 2.1 billion USD as offsets. Which are one third of the overall deal. Yes, that may be a wrong number unless there are some hidden aspects. Brazil had that deal in 15-16 years ago. 1 billion USD at that time will be lot more now.

True, Sir, but 6.3 billion USD for 2 SSKs just seems outright ludicrous. I mean, the Indonesians did not go for more South Korean copies of the Type 209-1400 after the loss of the older Type 209-1300 boat Nagapasa (which had been refitted in South Korea), but I can't imagine Indonesia agreeing to pay over 3 billion USD for a SSK. They'd just go to South Korea and get 5-6 more Type 209-1400s for the same price.

 

[Dredd]

Um, going by what this article and other news sources have put, these new boats would have significantly increased indigenous content than the original six, with figures quoted being close to 60% on the new boats. Yes, that is still low, but if the indigenous content has gone up, so would the price.

Why would indigenous content cost more money? I don't think the French would be charging any royalties on indigenous content when they have already been paid for ToT. Adding to the price, AIP would itself cost at least 10,000 crores alone for 3 submarines, making this deal as costly as submarines of Project 75I (3 Nos).

 

[Dredd]

SSNs are even more expensive. Also, the German boats aren't going to be significantly cheaper than that. As for the rest, please refer to the calculations I have done in my comment which shows that the actual price escalation is about 25%, not 200%.

These are still ridiculously expensive submarines, yes, but the price isn't as bad as many are making it out to be.

Including AIP this deal will cost close to 50000 crore making it 60% costlier than original one accounting inflation. The cost should not be this high as we have already paid for infrastructure setup, manpower and tot.

 

[Anant]

Including AIP this deal will cost close to 50000 crore making it 60% costlier than original one accounting inflation. The cost should not be this high as we have already paid for infrastructure setup, manpower and tot.

Arey bhai. What gives you the impression 3 AIP sets are going to cost some Rs. 14,000 crores? It'll be a fraction of that price. Even if you assume each AIP system costs, say, 100 million USD, that takes the overall bill to some Rs. 38,500 crores, which translates to a price escalation of roughly 30% beyond inflation. Most of this would be coming from stuff such as increased indigenisation, certification costs, etc.

 

[Anant]

Why would indigenous content cost more money? I don't think the French would be charging any royalties on indigenous content when they have already been paid for ToT. Adding to the price, AIP would itself cost at least 10,000 crores alone for 3 submarines, making this deal as costly as submarines of Project 75I (3 Nos).

Indigenous content costs more money because every indigenised component is one less component they can sell support and spares for later on. If you can build, say, the periscope yourself (and we do), then that is a periscope France or someone else cannot sell us in a few years' time when the submarines periscope has to be replaced or upgraded.

Essentially, these added costs are a way for companies to mitigate opportunity losses down the line.

Now, coming to what you think the AIP system seems to cost, maybe, just maybe, realise that the price you are quoting (some Rs. 3,300 crore per AIP system) is ridiculously overpriced? Unless you have a source which definitively shows the price, you are just speculating, and common sense shows that the real price will be significantly lesser. If I had to hazard a guess, I'd say something like 100 million USD (~Rs. 850 crores) per system.

 

[Dredd]

Indigenous content costs more money because every indigenised component is one less component they can sell support and spares for later on. If you can build, say, the periscope yourself (and we do), then that is a periscope France or someone else cannot sell us in a few years' time when the submarines periscope has to be replaced or upgraded.

Essentially, these added costs are a way for companies to mitigate opportunity losses down the line.

Now, coming to what you think the AIP system seems to cost, maybe, just maybe, realise that the price you are quoting (some Rs. 3,300 crore per AIP system) is ridiculously overpriced? Unless you have a source which definitively shows the price, you are just speculating, and common sense shows that the real price will be significantly lesser. If I had to hazard a guess, I'd say something like 100 million USD (~Rs. 850 crores) per system.

No we already paid for those ToT, we are not paying for extra ToT this time, So French should not cost any thing extra for which we already have tech, Unless MDL has some other explanation for thsis. My assumption is based on PSU usual costing behaviour when it comes to indigenous upgrade system, Like Su 30 upgrade coming to $80 million per jet. No way the AIP system will cost just $100 million it will close to $300million per boat. Anyway this is my assumption , i will be happy if proven wrong by PSUs.

 

[Dredd]

Arey bhai. What gives you the impression 3 AIP sets are going to cost some Rs. 14,000 crores? It'll be a fraction of that price. Even if you assume each AIP system costs, say, 100 million USD, that takes the overall bill to some Rs. 38,500 crores, which translates to a price escalation of roughly 30% beyond inflation. Most of this would be coming from stuff such as increased indigenisation, certification costs, etc.

Ideally our deal should have costed 36000 including AIP, Does This deal contain price for enlarging Scorpene design for fitting of AIP system, and other changes in internal power systems to accommodate the changes.

 

[Anant]

Ideally our deal should have costed 36000 including AIP, Does This deal contain price for enlarging Scorpene design for fitting of AIP system, and other changes in internal power systems to accommodate the changes.

Given that the new submarines will be based off the Brazilian Scorpene variant to an extent, I have a feeling the cost of changes to the design is covered in this Rs. 36,000 crore figure. It seems to be only the AIP sets themselves and additional testing costs that would be on top of this.

That said, I do agree that the costs of the system should have been included as well. However, with not even one system yet certified fot actual trials on a submarine, estimating the costs of an AIP set would be difficult top, and the only approximation would be through costs of other similar systems.

 

[Anant]

No we already paid for those ToT, we are not paying for extra ToT this time, So French should not cost any thing extra for which we already have tech, Unless MDL has some other explanation for thsis. My assumption is based on PSU usual costing behaviour when it comes to indigenous upgrade system, Like Su 30 upgrade coming to $80 million per jet. No way the AIP system will cost just $100 million it will close to $300million per boat. Anyway this is my assumption , i will be happy if proven wrong by PSUs.

So, the reason I don't think the AIP system will cost like 300 million USD per boat is because of Indonesia's deal for the Scorpenes last year. They will be paying 1.05 billion USD per boat (for two boats). These will have the French AIP system included, and will be assembled / partially manufactured in Indonesia. Now, building the submarine in India in our case would increase the premiums involved, but given that we know how much the submarine is poised to cost, yhe cost of the AIP systems seems to be slightly lower.