HAL-Rafale - An Avoidable Controversy
Though the recent judgement of the Hon’ble Supreme Court has legally settled the controversy on the Rafale MMRCA procurement, a political storm on the issue still rages. Air Marshal Anil Chopra analyses the several implications of this controversy on the prowess of the IAF, the efficacy of the procurement process, the initiatives to indigenise and, importantly on the reputation and status of HAL
The bench of Chief Justice Ranjan Gogoi, and Justices SK Kaul and KM Joseph has finally put to rest the legal side of the controversy related to the Rafale fighter jet deal. Pronouncing its judgment on a batch of PILs, Supreme Court of India (SC) dismissed all petitions stating that there was no reason to interfere in the Rafale deal on the basis of allegations that were based on 'perceptions'. Whether it was related to the deal price, the selection of the offsets partner by the foreign vendors, or for the need for a SC monitored probe, the SC gave an 'all clear' verdict. The three-judge bench, in a unanimous 29-page detailed judgment, said that they were satisfied with the procurement process and that it did not find any reason to interfere. The Apex court had consciously confined its scrutiny to reasonableness of the decision-making process, absence of mala fides or favoritism.
The political slugfest that has been going on for months has had several fallouts and implications. Firstly, any doubt created about an important security-critical weapon system not only affects the morale of the military personnel, it could cause delays or mar future contracts or purchasing, and in the process holding the national security to ransom. It also exposes the nation, which as an aspiring global power in the comity of the nations as a poor decision maker. It also exposes the internal rifts which can be taken advantage by foreign elements inimical to India's interests. Pakistani Army and their Inter services intelligence (ISI) must be having the last laugh.
The second one is the future defence procurement decision making process. The entire defence procurement machinery at the political, bureaucratic and military level goes on the defensive. We have known in the past the defence ministers who would not let the procurement process move forward if there was a slightest doubt created by even an anonymous letter alleging a bribe or procedural lapse. Similarly, the bureaucracy thinks many times over before putting the pen on the file, lest they are hauled up many years later for even a genuine decision-making judgmental error.
Thirdly it is the armed forces who desperately need the security equipment to meet the task of defending the nation assigned to them. The delay or worse, cancellation of the contract could push the acquisition process by over a decade.
Fourthly is the impact on the fledgling private defence industry. The process to privatize defence production so as to invite foreign funding and also technologies through joint ventures was initiated in a big way around 2001. Unfortunately, the movement has been very slow. The industry needs initial hand holding. But allegations of crony capitalism and political favoritism slows the entire process.
Fifthly, political morality, or lack of it, has been fully exposed and last but not the least, this political mudslinging has unfortunately brought Hindustan Aeronautics Ltd (HAL), a Public Sector Undertaking under the Ministry of Defence, into the cross-hairs, leading to it being publicly humiliated.
HAL and the Rafale Contract
The original process for acquiring 126 Medium Multi-Role Combat Aircraft (MMRCA) aircraft had envisaged procurement of 18 fly-away aircraft from the manufacturer, and the remaining 108 were to be built in India with transfer of manufacturing technology in India by HAL. After a grueling selection process, the French Dassault Rafale was selected based on it meeting the technical specifications and being the lowest (L1) bidder. It was officially declared winner in January 2012.
During the final pre-contract commercial negotiations, two contentious issues could not be resolved. Firstly, the HAL had projected 2.7 times the man-hours required to produce the aircraft vis-a-vis the standard production man-hours calculated by the Original Equipment Manufacturer (OEM) based on years of production experience of the same aircraft. If such higher man-hours were to be accepted, then the total cost of manufacture in India would have escalated considerably.
Unfortunately, HAL has been known to be using much higher man-hours even manufacturing aircraft of Russian and British origin. Invariably the Indian armed forces have to pay nearly 25-30 percent more for HAL made products as compared to the same product being imported from abroad. It thus means not only promoting inefficiency but it also eats up into the scarce capital budget of the service.
The second issue was related to Dassault being responsible for quality assurance of the manufacturing by HAL. There was obvious mention to this effect in the Request for Proposal (RFP). For any third party to take responsibility of manufacturing quality of an enterprise over which it has no direct or indirect control was perhaps an unreasonable expectation even if it had actually been part of the RFP. In the past the Russians, British and French, whose aircraft HAL has made under licensed production, have not taken such production quality assurance on HAL's behalf. Therefore, the contracting process for 126 aircraft came to a dead-end. Both the UPA and NDA governments followed the processes by the Defence Procurement Procedure (DPP) then in vogue. Finally, 36 off-the-shelf aircraft were purchased directly from OEM and a separate process for procuring 110 new fighters for IAF was initiated.
HAL – A ‘Navratna’
HAL is India's largest defence company which is primarily involved in the design, fabrication and assembly of aircraft, jet engines, and helicopters and their spare parts. It has several facilities spread across India. Originally founded in 1940 as Hindustan Aircraft, it was renamed in 1964. It has nearly 32,000 employees and had a revenue of Rs 17,406 (US$2.4 billion) in 2016-17. The total assets are Rs 63,898 crore (US$ 8.9 billion). It has manufactured under license a large number of aircraft including the HS-748 'Avro', MiG-21, Folland Gnat, SU-30 MKI, BAe Hawk 132 and others. It was the OEM for HF-24, Light Combat Aircraft (LCA) and Advanced Light Helicopter (ALH). It has been manufacturing a large number of jet engines under license from many countries. HAL has been undertaking overhauls of many aircraft and engines in India, including the Mirage 2000. HAL has also obtained several multimillion-dollar contracts from leading international aerospace firms such as Airbus, Boeing and Honeywell to manufacture aircraft spare parts and engines. HAL has a large number of joint ventures with leading aerospace companies of the world. More than 40% of HAL's revenues come from international deals to manufacture aircraft engines, spare parts, and other aircraft materials. It manufactures aircraft parts for Boeing, Dornier aircraft for Switzerland, aircraft parts for Airbus, and engines for Honeywell, among many others.
Over the next 5 years, HAL will carry out major upgrade of almost the entire fighter fleet of Indian Air Force including Su-30MKI, Jaguars, Mirage, MiG-29 and Hawk jets. It is in the process of completing the order for manufacture of nearly 200 SU-30 MKI. It has orders of nearly 500 ALH and 200 Light Combat Helicopters (LCH) from the armed forces and some domestic agencies. IAF has committed for nearly 200 LCA. HAL is also developing the stealth Advanced Medium Combat Aircraft (AMCA) and the Indian Multi-role Helicopter (IMRH). the Hindustan Turbo Trainer (HTT-40) is undergoing flight testing.
Among some of the various HAL hits, there have been many misses. The LCA programme is nearly two decades behind schedule and production rate has been very slow. India has still to develop a good intermediate jet trainer, Even the basic stage trainer HTT-40 has been struggling. The proposed Advanced Jet Trainer HJT-39 is still at a proposal stage. India does not have a worthwhile transport aircraft program. India needs a viable plan for a series of Unmanned Aerial Vehicle (UAV) of different sizes. HAL can be summed up as a company with great potential needing better management, vision and drive.
IAF and HAL are literally connected through an umbilical cord. A large part of IAF's aircraft and spares requirements are met through HAL. Either these are produced in India by HAL or have been procured through HAL from abroad. HAL also repairs or overhauls aircraft and aggregates using the above two options. HAL also backs the IAF with expertise and service at some of the airbases. Nearly 1,000 MiG-21s were produced by HAL for IAF. Over 200 SU-30 MKI have been supplied by HAL. Over 200 LCA are required by IAF. Effectively nearly half of the IAF has always been HAL built. Yet there are issues that have not been successfully resolved for years. For any product or aircraft, the Service Qualitative Requirements (SQR) are evolved jointly between IAF, HAL and DRDO. Many times, HAL overstates capability and timelines. Sometimes delays run into tens of years. Often HAL seeks major concessions on SQRs. Invariably in the interest of indigenization IAF has to give in. The delays affect IAF's force level planning. It often is too late to look for similar systems abroad to make good depleting assets.
Sometimes inordinate delays result in better operational sub-systems available globally and now the IAF must either review SQR or accept lower capability. Similarly, aviation is more prone to system obsolescence resulting in need to change a system. This causes further delay in integration and testing. Production quality of HAL products has been in question for some time. There have been aircraft losses on this count. Lastly the cost of production of aircraft or spares by HAL is much more than when the same item is imported directly from OEM. This indicates a level inefficiency. These issues create friction and finger pointing.
Public Sector Complexities
DPSUs like HAL come under the bureaucratic control of MoD. Officials controlling very technical issues like aircraft production have mostly generalist administrative experience. They often seek external support for decision making. Often decisions get delayed due to heavy workload, lack of expertise and other priorities. Often the MoD bureaucrats get diametrically different input from the user service thus they have to seek clarifications to resolve issues, in the process losing critical time. Costing of items is an important issue that MoD has to resolve before final go ahead is given. The higher administration in HAL is made up of organizational promotees and unlike better corporate houses cannot laterally induct talent because of relatively lower salaries. Government has been trying to divest holdings in HAL to bring private sector culture and make the Board more accountable to share holders. Only 10% has been divested till now. Also, Ministry of Defence is trying to increase user interface. The Indian Navy exercises direct control over ship design and building by positioning serving or retired naval officers at all key top appointments. MoD has proposed to position IAF officers to head key HAL divisions and the Aeronautical development Agency (ADA). There is obvious resistance, and last word has still to be said. The government has also been trying to push 'Make-in-India' in defence by incentivizing private sector through industry friendly clauses in the DPP, but success is coming in bits. Private sector could infuse funds and latest technologies.
The Way Ahead
HAL is a very important DPSU. Yes, it has shortfalls, but is the best we have today. All efforts must be made to make it more efficient and user friendly. Making it into political football to score points against opponents is not a desirable thing.
India is among the most threatened regions of the world. IAF is down to an all time low of 31 fighter squadrons vis-a-vis the government authorized 42. Fighter aircraft are urgently needed to make good the depleting numbers. Security is a sensitive issue.
All political parties must adopt a bipartisan approach. There are enough other subjects to settle political scores. HAL has to build hundreds of LCAs and helicopters. Even the Ka-226 will be in there plate soon. Indigenization has to succeed if India wants to become a great power. Any further finger pointing will affect their morale. It is time to hold their hand and get them to improve.