Amidst Rafale controversy, defence ministry report terms HAL jets costlier

New Delhi: A recent report from ministry of defence (MoD) has revealed that the fighter jets made by Hindustan Aeronautics Limited (HAL) – the Bengaluru-based defence public sector unit – are considerably costly than the ones produced abroad by the original equipment manufacturer (OEM).

As per reports, the department of defence production is reviewing the document as of now.

High costs at HAL

  • The copy of document accessed by HT states that Su-30MKI – Indian Air Force mainstay fighters produced by HAL – cross a cost margin of about Rs 150 crores in comparison to the ones manufactured in Russia.
  • 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.
  • Additionally, the cost of Hawk jets, which are used to train pilots, have seen a significant rise in price at the helm of HAL over years.
  • After elaborate negotiations with Britain in 2044, India bought 62 Hawk jets – out of which 24 were in fly-away condition and the remaining were to be manufactured under licence by HAL.
  • At that time, each Hawk aircraft that Britain manufactured in 2004 came with a cost of  Rs 78 Crore whereas 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.

Rafael connection

  • The Congress-led previous government has been sidelining the Modi government over the fact that their original deal included 126 Rafale jets – 108 of which were supposed to be assembled in India by HAL. While the BJP government chose to buy only 36 fighter jets produced in France citing 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.
  • However, HAL has stated its disagreement with the report’s interpretation.
  • “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,” HAL’s spokesperson was quoted as saying in media report.

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.