india

Updated: Oct 19, 2018 07:59 IST

Fighter jets made by Hindustan Aeronautics Limited (HAL) – the Bengaluru-based defence public sector unit – cost more than the same jets produced abroad by the original equipment manufacturer (OEM), a recent review of the state-owned company by the ministry of defence (MoD) has found.

The department of defence production is studying the document, said an officer aware of the development who did not want to be identified.

Su-30MKI – the mainstay fighters of the Indian Air Force (IAF) which is manufactured by HAL under licence from Russia – is about Rs 150 crore costlier than the ones made in Russia, according to the document, a copy of which has been reviewed by Hindustan Times.

“The aircraft produced at HAL comes at a significantly higher cost when compared to direct purchase from the OEM,” the document added.

A Su-30MKI made in Russia cost Rs 269.77 crore whereas one made by HAL in India costs Rs 417.69 crore, almost “Rs 150 crore” more per aircraft, the review said.

Similarly, there is a huge cost difference between the cost of the Hawk trainer aircraft manufactured by British Aerospace and those made HAL.

After long and torturous negotiations, India bought British made Hawk jets to train pilots in 2004. Of the initial 62 Hawk jets, 24 were to be bought in a fly-away condition and the remaining were to be manufactured under licence by HAL. Each Hawk aircraft manufactured Britain in 2004 cost Rs 78 Crore. Those manufactured at HAL would have cost Rs 88 crore that year. The cost Hawk aircraft produced by HAL continued to increase. In 2010, the cost shot-up to Rs 98 crore and in 2016, Rs 153 crore. The difference in price “is primarily due to lesser efficiency and exorbitant man hour rates,” the review has found.

Interestingly, the purchase of 126 Medium Multi-Role Rafale fighters from French Defence manufacturing giant Dassault that was negotiated by the previous government (108 would have been assembled in India by HAL) was scrapped because of high man hour cost at the Indian state-owned company. HAL would have needed 2.7 times more man-hours than the French company for each aircraft.

HAL disagrees with the interpretation of the report. Responding to queries, a spokesperson said “Cost escalation from 2005 (for the Hawk jet) is normal. We also need to take into account the life-cycle cost of each product against off the shelf purchase from overseas. The indigenous benefits, the ecosystem HAL creates for the larger benefit of the country should be factored in also. Importantly, staggered or small orders deny economies of scale to HAL.” HAL also pointed to supply chain issues adding to cost. “Given that multiple agencies get involved in our manufacturing process, kit cost from OEMs and other delays like raw material and spare part supply issues, which are also endemic to the aerospace industry in India, the increase in cost must be evaluated in the right spirit,” the spokesperson added.

The National Democratic Alliance’s decision to enter a $8.7-billion government-to-government deal with France to buy 36 Rafale warplanes made by Dassault was announced in April 2015, with an agreement signed a little over a year later. This replaced the previous United Progressive Alliance regime’s decision to buy 126 Rafale aircraft, 108 of which were to be made in India by the state-owned Hindustan Aeronautics Ltd.

The deal has become controversial with the Opposition, led by the Congress, claiming that the price at which India is buying Rafale aircraft now is Rs 1,670 crore for each, three times the Rs 526 crore, the initial bid by the company when the UPA was trying to buy the aircraft. It has also claimed the previous deal included a technology transfer agreement with HAL.

The NDA has not disclosed details of the price, but the UPA deal, struck in 2012, was not a viable one, former defence minister Manohar Parrikar has previously said, implying that it would have never been closed and that, therefore, any comparison is moot. Indeed, the UPA was not able to close the deal till 2014, largely over discussions related to pricing of items not included in the initial bid.

The NDA has said that the current deal also includes customised weaponry.

The deal has also become controversial on account of the fact that one of the offset deals signed by Dassault is with the Reliance Group of Anil Ambani. The Congress claims the earlier deal was scrapped and a new one signed just to provide Ambani this opportunity for an offset deal. Both the government and Reliance have repeatedly denied this.