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Socialism in Defence PSUs: Waste of resources and time...
Problem: seemingly unrectifiable is the bureaucratic attitude to indigenous production. MoD officials explain their own (and by extension the military’s) partiality to foreign-sourced weapons systems by saying that
Problem: seemingly unrectifiable is the bureaucratic attitude to indigenous production. MoD officials explain their own (and by extension the military’s) partiality to foreign-sourced weapons systems by saying that
encouraging indigenization and growing the local defence industry is no part of their brief and the allotted ‘rules of business’. Their task, they assert, is to merely see that the military is adequately armed.
The defence production bureaucrats, on the other hand, have the oversight and responsibility for the DPSUs as their remit and are, therefore, committed to ensuring that all major arms licence production contracts are directed to them, that their order books are always overfull
and that they are always in good financial health. Incidentally, DPSU facilities have a replacement value of ₹6 lakh crore and are, in a sense, ‘unreplicable’ with current orders on their books touching ₹7 lakh crore
versus a measly contract worth ₹1500 crore for OPVs to the private sector in the period 2014–17. And this small contract accrued only because both L&T and Pipavav shipyard (bought over by Reliance Defence) strongly complained that
as regards warship construction, they had invested ₹4000 crore and ₹3000 crore respectively in building up capabilities but that the DPSUs had cornered all the orders valued at ₹2 lakh crore.
So the Parrikar-run MoD opened up the private sector to competitive bidding, to start out, for smaller projects such as for OPVs. The irony is that DPSUs are able to meet their contractual obligations only by .
outsourcing work to private sector majors like L&T, Tata, Mahindra, et al. The government allows DPSUs to charge 30 per cent over the cost to them from private sector firms. This permits DPSUs to show a healthy bottom line.
Except, such DPSU-friendly official milieu is naturally hostile to the private industry and results, as an industry source put it, in MoD/DDP officials ‘saying one thing to the industry, and doing the opposite to favour DPSUs, and
taking an unconscionably long time—as much as five to six years—to just put a signature to paper’. This last is because of the system of file movement up and down the MoD, defence procurement and defence finance decision-making silos
and, because the same people have to sign even a slightly amended paper, it has to make the same journey over and over again. ( @BJP4India promised reform here but still no change in the process of functioning things)
This is the normal Kafkaesque file-pushing scheme prevailing throughout the government that Prime Minister @narendramodi had promised to eliminate, but has failed to do.
It is justified as of the decision-making process in procurement gobbledygook that’s hard to make head or tail of. The official mindset has stayed stuck in the socialist-era Deep State principles that perceives private sector defence companies with the gravest suspicion.
‘They think of us,’ said the head of a new defence manufacturing venture of a major business house, ‘as chors (thieves)’ who need to be given no quarter and who, in fact, ought to be ‘squeezed’ into conceding more and still more, with a view to limiting their profit margins,
the very notion of profitable private sector defence ventures being anathema to them. His company’s initiative, for example, of approaching HAL with repeated offers to share its Tejas LCA workload, he said, ran up against just this outlook and was repeatedly rebuffed.
This company was confident that after computing the cost of HAL’s manufacturing facility and its workforce, it could make a proposal in which it would secure the necessary manufacturing technology and processes on its own and roll out the first LCA inside of two years if allowed
to use the existing HAL manpower and facilities—currently utilized to only 30 per cent of its capacity—or, within an additional fifteen to twenty months if the company had to set up its own Tejas production line de novo, and still turn a profit.
He did not, he said, hear from HAL( @HALHQBLR )again except for a generic reply to forward an RFI.
There is no dearth of such stories illustrating the extraordinary waste of time and resources by DPSUs and their collusion with the MoD and DDP officials. The standard operating procedure of the DPSUs is underscored by the following example retailed by an industry insider.
Bharat Electricals Limited (BEL) was tasked to build an electro-optics facility. It was allotted ₹300 crore and 500 acres of land. The first thing it did with the money was lay out an officer’s colony complete with a clubhouse and swimming pool and parks, etc. before
turning to the government for funds to buy the actual manufacturing paraphernalia. In reality, this source said, a smart electro-optics production unit would cost no more than ₹50 crore and require only about an acre of land.
He contrasted the DPSUs’ spendthrift ways with a project proposal, he says he had once made to a Tata company to produce the short (25 km) range Akash surface-to-air missiles (SAMs) at the rate of two missiles every three days in a factory on 4 acres of land
with an outlay of ₹83 crore, which the company board rejected as a cost-inefficient scheme. In comparison, the premier missile production DPSU, BDL, was budgeted ₹1500 crore and given 500 acres of land, and it produces only six Akash missiles per year.
Such appallingly low levels of labour productivity is normal for DPSUs and ordnance factories.
A recent NITI Aayog study found that the value produced per worker in OFB units is only ₹6 lakh per year, when the minimum value a worker has to produce is ₹40 lakh to ₹50 lakh annually for an MSME to be economically viable.
The total amount spent on R&D and production of the Akash SAM over the years now stands at ₹30,000 crore. Given the differentials in the price and cost of their products and in the lethargic functioning of BDL,
why wasn’t the production of the Akash missile, powered by a ramjet engine, and the development of its longer range variants, handed over to the private sector?
Because, as this person put it pithily: ‘There is a khali sthan [empty space] between the ears of the MoD and Department of Defence Production (DDP) officials. That the country’s resources are wasted this way is not their worry.
