The selection of Rafale paves the way for signing a contract with Dassault, its French manufacturers, after a round of commercial negotiations over the next few months. This will be the first export order for the French aircraft that has been struggling to find commercial success.

While India initially budgeted Rs 42,000 crore for the deal to purchase 126 medium multi-role combat aircraft (MMRCA), sources said the deal will now cost Rs 76,000 crore upward, making it the largest international defence deal by value in recent years.

India is also likely to increase the order book by adding 60 more aircraft to the deal over the next few years, making the contract bigger.

Sources confirmed that a letter has been dispatched to Dassault and top officials were called to South Block and informed of the decision.

European consortium EADS lost out on the contract. Sources said the difference in price was “significant”. The Eurofighter is learnt to have been almost ten percent more expensive that the French fighter.

While Dassault has been called for commercial negotiations, sources said the contract would not be signed this financial year. “It could take several months to sign the deal as a lot of paperwork needs to be done. We are hoping to sign the deal in the next financial year,” an official said.

The fighter, which will progressively replace the MiG-21 fleet that has already overshot its operational life, is likely to get inducted from 2014-15. A total of 126 fighters will join the IAF over a period of 10 years. It is likely to remain in service for over three decades.

The Rafale will be one of the three aircraft that will form the backbone of the air force over the next two-three decades. The others being the Su-30 MKI fighter and the fifth generation PAK-FA fighter being jointly developed with Russia.

The French firm has had an interesting relationship with the IAF over the past decade. It almost bagged the order to replace the MiG-21 fleet after the requirement was put out in 2001 but a policy change in 2004 forced a global competition.

In 2008, the firm was almost thrown out of the contract after it failed to meet qualitative requirements that were needed according to the tender document. The situation was salvaged after Paris intervened and Dassault gave an undertaking that it would meet all requirements.

In 2011, it became one of the two contenders — the other being the EADS Eurofighter — to be shortlisted for the tender. Four other aircraft — \Russia’s MIG-35(RAC MiG), Swedish JAS-39 (Gripen), American F-16 Falcon (Lockheed Martin), Boeing’s F/A-18 Super Hornet — were rejected on technical grounds.

The deal is a shot in the arm for Dassault that has been struggling for export orders. After several attempts in the internal market, not a single Rafale has been exported. Most recently, it was rejected by UAE in favour of American fighters. This, despite the fact that it has performed well in Afghanistan and, more recently, during the Libyan crisis.

The mega deal with India will ensure that it remains competitive in the international market and will infuse new life into the French arms sector. \The deal is also slated to bring investments of close to Rs 38,000 crore into the Indian defence production sector with the Ministry of Defence mandating 50 per cent direct offset obligation for the winning bidder. Complete transfer of technology has also been made obligatory for the contract.