Is indigenisation just a slogan?

by Ajai Shukla

Business Standard, 21st Jan 14

The coming week will see an important battle in the struggle to transform India from the world’s largest arms importer into a country that produces a respectable modicum of the weaponry it needs. The battle will be fought in the Defence Acquisition Council, the apex decision making body of the ministry of defence, which will decide whether to scupper the development of an indigenous basic trainer aircraft (BTA) by Hindustan Aeronautics Ltd (HAL) by paying Swiss aerospace company, Pilatus, to build 106 BTAs in India.

The Indian Air Force (IAF), which has always backed import, howsoever expensive, over the painstaking process of development, is squeezing the MoD to give Pilatus the contract. HAL, with a record of time and cost overruns, but with a new confidence stemming from the successful Tejas fighter and proven helicopters like the Dhruv, insists that it can easily build a BTA. HAL rightly points out that 75 basic trainer aircraft --- the PC-7 Mark II --- have been contracted from Pilatus as the IAF had wanted; but the defence ministry had also ruled that the remaining 106, needed to make up the IAF’s overall requirement, should be developed and built in India. To this end, HAL has committed close to Rs 200 crore of its own money in designing the Hindustan Turbo Trainer–40 (HTT-40).

In turning its face on this agreement, the IAF has cunningly played the “national security” card, declaring that India’s security depends on basic training, to hell with indigenisation. In a paper sent to the defence ministry on November 4, the IAF has said that it did not trust HAL to develop a trainer. This even though the Bangalore-headquartered company has played a major role in building the Tejas fourth generation fighter.

For the ministry, the options are clear. On one side is the logic of inducting trainer aircraft quickly to allow enough pilots to be trained. Opposing this is the urgent need for indigenisation; and the economic rationale of obtaining much cheaper maintenance, overhaul and spares all through the 30-40 year service life of an indigenous aircraft, compared to expensive overseas vendors. These life-cycle costs add up to four to five times the procurement cost of an aircraft. There is also the growing understanding that building indigenous aircraft will create an aerospace industry eco-system across the country, providing production volumes, jobs and expertise in high-tech manufacture.

The IAF’s fundamental logic is that HAL’s record of delays renders it unsuitable to be entrusted with a development programme. Aerospace enthusiasts know that delay is the only certainty while developing aircraft. Every major on-going fighter project has been marked by years of delay --- the F-35 Joint Strike Fighter in the US; the Eurofighter and the French Rafale that the IAF is buying. When even mature aerospace industries face chronic delays, it is short sighted to pillory India’s underfunded aerospace establishment for having taken three decades to learn what its foreign counterparts have assimilated in a century of government nurturing. The Tejas fighter is a tale of delay only to the thoughtless; in fact, it represents an admirable technological leapfrog.

The second major worry for the MoD should be the snake oil economics that the IAF backs its case with. Arguing that the Pilatus trainer is cheaper than the HTT-40, the IAF (speaking apparently for Pilatus) has quoted Rs 4,520 crore for 106 PC-7 Mark II trainers, i.e. Rs 42.64 crore per aircraft. In reaching this figure the IAF has strangely omitted the cost of ground equipment (Rs 452 crore); spares (Rs 678 crore); cost of ToT (Rs 252 crore); cost of manufacturing infrastructure (Rs 385 crore), simulator (Rs 218 crore); role equipment (Rs 226 crore) and transportation (Rs 63 crore). This takes the bill to Rs 6,925 crore, which comes to over Rs 65 crore per PC-7 Mark II. This is much higher than the HTT-40.

Moreover, the HTT-40 is being designed, developed and built in India, while the PC-7 Mark II is merely being assembled. The IAF proposal states that 10 of the 106 Pilatus trainers would be imported fully built; 28 in semi-knocked down (SKD) kits; and 68 completely knocked down (CKD). The IAF has proposed that one of its maintenance units, 5 Base Repair Depot in Sulur, Tamil Nadu, will assemble these kits into aircraft. Assembly imparts zero aerospace knowhow, and is a mere façade of indigenisation. For this, Pilatus would be paid Rs 2,405 crore. It would be cheaper to just buy the PC-7 Mark II fully built rather than pay so much for a fig leaf.

Finally, in passing this hare-brained proposal the MoD would risk serious trouble with audit and vigilance agencies. The BTA tender was for purchasing 75 fully built aircraft, not for building them in India under ToT. Vendors who lost out to Pilatus could legitimately contend that they would have won had ToT been a part of the tender. Already, Korean Aerospace Industry had contested the award of the contract to Pilatus. Moreover, the Defence Procurement Policy of 2013 (DPP-2013) explicitly prefers indigenous development to buying from overseas or building in India with ToT. If it chooses to ignore this crucial policy directive, the MoD would have proven that indigenisation remains a slogan.