A day after it was revealed that the Ministry of Defence (MoD) had, under pressure from the Minister for Heavy Industries & Public Enterprises Praful Patel, delayed a crucial deal of the Indian Air Force (IAF), a group of private sector industries in defence and aerospace sector petitioned defence minister AK Antony to not dither and delay the deal. A single-page letter addressed to Antony was sent on Friday afternoon from the Confederation of Indian Industries (CII).
Earlier, in October, Patel had challenged the defence ministry and the IAF over the deal to acquire 56 transport aircrafts to replace the ageing Hawker Siddley (HS) AVRO 748. In his communication to Antony, following which the latter ordered an examination of the deal, Patel had opposed the deal on the grounds that Public Sector Undertakings (PSUs) were being denied an opportunity to compete for the IAF’s order. As a result of this controversy, top MoD sources informed, the IAF had to extend the date of receipts of proposals from December 8, 2013 to March 8, 2014. The deal was initially supposed to involve the submission of proposals in October 2013 but that too was extended.
The CII letter, a copy of which was accessed by this correspondent, signed by its Director General Chandrajit Banerjee described the stalemate and delay in the execution of the deal as a ‘major concern’. Mentioning that its members have readied their positions towards responding to IAF’s Request For Proposal (RFP), it mentioned, “we understand that there is a strong lobbying going on for stalling the progress of AVRO as evolved over past few years.” Responding directly to issues Patel had raised, the letter says, “…Hindustan Aeronautics Limited (HAL) or any other Defence PSU, as an entity, has not been excluded from the participation in the project. Moreover, HAL is free to tie up with private sector companies who would be the Indian Production Agency (IPA). Requesting Antony’s ‘urgent intervention’ towards ensuring that the AVRO replacement deal continues, CII goes on to warn, “Revisiting the program, at this advanced stage, will not only stall this project but also discourage private sector to proactively invest in the defence sector.”
Commenting on the scenario, Vijay Mathur, former chairman International Airports Authority of India who is also a member of CII’s National Committee on Defence & Aerospace said, “India’s aviation market has grown much larger from what it was when HAL was set up. Given that this rate of growth is only set to accelerate, India will need a second line of assembly to meet its requirements. As far as HAL is concerned, it is already carrying a heavy load of helicopters, fighters and trainers. Under these circumstances, given that the MoD has followed a transparent and detailed process, to roll it back now would be counter productive.”
Within the MoD, too, there seems to be sympathy for the industry. “This is not a strategic project involving complex technology. A transport aircraft of this type is a basic-level platform. If our private sector is encouraged somewhere this is the deal,” said an officer. It was also revealed by an industry source that the major Indian companies in the aerospace sector like the Tatas, Mahindras, L&T & Punj Lloyd had already tied up with foreign Original Equipment Manufacturers (OEMs) and were ready to bid.
Why is this deal different?
The primary cause for the opposition by Patel on behalf of the Public Sector Undertaking (PSUs) lies in the nature of this deal. When in June 2011, the IAF indicated a need to replace these transport aircrafts, a detailed examination was done in the MoD to evaluate the situation at the only Defence PSU capable of manufacturing and assembling aircrafts in India, the Hindustan Aeronautics Limited (HAL). It was then decided to acquire these aircraft from foreign Original Equipment Manufacturers (OEMs) who had to tie up with one or a consortium led by Indian private sector players and announce an Indian Production Agency (IPA). The deal also involved the off-the-shelf purchase of 16 initial aircraft followed by manufacturing and assembling of the rest in the IPA with a complete Transfer of Technology (ToT).