“Make in India” and the ground reality

Lalit Shastri


The apex auditing agency –the Comptroller and Auditor General of India–has put a question mark on the ability of Hindustan Aeronautics Limited (HAL) to absorb technology and this has been underlined in the latest Annual report (2013-14) of the Ministry of Defence.

HAL is an organisation that claims to pursue the vision of becoming a significant global player in the aerospace industry. HAL reiterates its strength in terms of the ability to continually reduce the cost and shorten the delivery period of its products and services.

The HAL claim notwithstanding the audit pointers in question that relate to developing self-relianace in manufacture of an engine to suit the requirements of advanced light helicopter (ALH) tell an entirely a different story. It has been pointed out that even after more than a decade, the self-reliance in manufacture of an engine to suit the requirements of ALH has not been achieved as envisaged. The need for variants of engines to operate at different climatic conditions and altitude was not foreseen leading to frequent modifications requiring more investment in terms of time and money.

Hindustan Aeronautics Limited (HAL) had signed in January 2003, a Cooperation Agreement, with Turbomeca, France (TM) at a cost of Rs.878.08 crore for co-development and indigenous production of 320 Shakti engines in five phases by 2013. The assembly kits for various phases were to be supplied by TM at the agreed prices subject to escalation (with 2002 as base year) valid up to the year of delivery. The audity report reveals HAL had to bear additional burden due to the failure of TM, indicating undue favours extended to the foreign partner in the development and production of Shakti engines. Failure to ensure compliance to offset obligation by the foreign collaborator has so far denied an opportunity to the Indian industry to contribute towards self-reliance.

Acquisition of additional technical knowhow without optimal usage of free technical assistance has further contributed to extra cost on the project, it has been emphasised.

Thus, the audit report points out, the inability of HAL to absorb the technology and non-assessment of the available in-house capacity to manufacture Shakti engines impacted timely induction of ALH into Defence forces and also resulted in avoidable extra expenditure of Rs. 204.27 crore to HAL.

Another case in point is that of Bharat Electronics Limited (BEL), which had entered entered into a contract for procurement with Rheinmetall Air Defence, AG, Zurich (RAD) despite the fact that the CBI was investigating the firm’s deals for alleged corrupt practices in earlier contracts which had the risk of the firm being blacklisted. As the firm was eventually blacklisted, this led to blocking of BEL’s funds of Rs. 502.31 crore.

What also comes as a damning observation relates to Bharat Dynamics Limited (BDL), an organisation incorporated with the objective of manufacturing sophisticated Defence equipment required by the Armed Forces. BDL is a prime production agency for Guided Missiles in India. The Bhanur unit of BDL, established (1988) for manufacturing Konkurs ATGM Systems and Unified Launchers, was assigned with the production of Konkurs missiles since 1989 as a part of the contract entered into by the MoD. Since Konkurs missile was not defeating the tanks fitted with ERA panel, Army recognized in 1994 the need for induction of Konkurs-M missile which is an advanced version of Konkurs and capable of defeating tanks protected by ERA. Audit has observed that the process of finalizing the contract took about eight years from the date of recognizing (1994) the need of improved version of Konkurs-M. Further, technology absorption took a longer time than anticipated and this led to delay in execution of the contract by three years and consequential delay in supply of 14,722 missiles resulted in loss of Rs.283.72 crore besides levy of Liquidated Damages (LD) of Rs.38.81 crore by the Army. The estimated loss for supply of the balance missiles is Rs. 297.25 crore and the likely LD is Rs. 75.57 crore. The financial loss is just one aspect covered as a mandate by the apex auditing agency but the bigger issue is defence preparedness and security requirements of the nation that have obviously got compromised.

These are a few pointers that should rattle the political executive and the policy makers in the country especially when Prime Minister Modi has pressed the throttle and is determined to push forward with full thrust the “make in India” campaign. With globalization and rapid growth in technology, the manufacturing scenario worldwide has become extremely competitive. Quality control, research and development, high degree of access to manufacturing techniques and know-how and commitment to economy of production besides a corruption-free environment are the essential wherewithals and any compromise on any one of these factors will take away the thrust and retard the momentum to catapult and place India among the top manufacturing countries. The writing is clear on the wall…the politicians only have to see it, read it and do something about it without wasting time.

Postscript (later during the day): In this the backdrop, Prime Minister Narendra Modi today carried forward the Manufacturing agenda by promoting the case for India as an ideal destination for investment at the Vibrant Gujarat Summit with the Mantra: “We are dreaming big. Our dreams are many. Our dreams can lay the seeds for your growth. Our aspirations can propel your ambitions”

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