It's not just about HAL, it's about government, it's about military...it's about majority of Indians.
Military could have easily asked for a design that was ahead of peer. Military could have given fixed requirements instead of vague. But do they?
Government could have treated PSUs as it's children to nurture them like every other country does instead of preferring foreign suppliers and literally abandoning them. But do they?
PSUs could have easily made 4-5 teams to compete with each other with alternate designs for a same project and in the end made something world-class. But do they?
First of all, your whole concept is faulty here.
As a user, the moment you fix your requirement with no place of change, you are doomed. Example. Arjun MBT. After the Bangladesh war, IA came up with a tank design of 50 ton which has to be better then the existing Vijayanta. So when they put the weight category at 50 ton, they had stuck the first nail in coffin. So what you are saying as vague specs are basically a blanket requirement which user seek.
Second point of government treating PSUs as their children. You should know that this is the particular reason why we have a non-existent MIC in spite of such a huge man-power force. Govt has treated PSUs as their children. Armed forces were forced to buy 70% of their requirements from PSUs. No private companies were allowed to venture in defence sector. The ideal way would have been to create a competitive R&D sector in between PSUs and Private sector. But government did treated PSUs as their children and spoiled that child by giving him unwanted benefit.
Third point, when you are getting pocket money by doing nothing and sitting idle, why would you want to work? By creating 4-5 teams and giving rise to competition, you would basically kill your source of income. So why on earth would you want to do that?
You see, to create a thriving MIC, the basic requirement is to have a conjuncture in between defence force and industrial force. But you can't expect army, navy or airforce to sit and keep a tab on industrial development and vice versa. For this very reason, Ministry of Defence has been created. It is their job to act as a bridge between user and provider. It is not the job of MoD to decide upon which weapon or system army has to use. Their job is to look at the requirement of forces and provide a viable option to them. If that solution is not available in country, then it is their job to create opportunity of its development and manufacturing within country. It is not their job to force feed what ever $hit your PSU is developing in the name of indigenous system.
So basically, government should have a clear cut view of what they want to achieve in defence sector and should prod on ways to achieve it. When you compare the know how achieved by HAL with license manufacturing with that of OFB, I would say that HAL has done a good job. Not fantastic, but good enough. Even BEML has done a good job with their license manufacturing.