Is HAL inefficient? Should Govt. split it?

[Sakal Gharelu Ustad]

Not only CAG, many people have no clue what they are talking about.

Rs. 440 cr - Rs. 227 cr = Rs. 213 cr. What is it for? Does man-hour alone justify this? Or is this extra cost due to man-hours and components?

We are comparing Sukhoi-30MKI with Sukhoi-30. The former has front canards, but the latter does not. The former has Indian, French and Israeli components. The latter does not. The former has economy of scale. The latter does not. But hey, let's pretend these difference contribute to zero cost escalation and blame HAL for the entire cost escalation.

I have no reference to anything, not even to the original numbers that @Mad Indian offered, that we are assuming to be true. Let @Mad Indian present what exact planes he is comparing, and the sources of his cost, and when the costs were evaluated; then we can talk. Till then, everything is "probably."

Had it been Rs. 1000 cr vs. Rs. 227 cr (the strawman number you came up with), my response would have been different. That is not the case. The case is Rs. 440 cr vs Rs. 227 cr.

"leftist"
"mainstream economist"
"free trade"
Wow!

Typical no-content-plentiful-verbiage post.

Quote me when you have something useful to offer. Spare me your nonsensical rants.


Claiming something to be a fact does not turn it into fact. What evidence have you presented to back up your claim that HAL is incompetent? Or is it based upon gut feelings alone?

And why sell HAL? Let Tata and Reliance come up with their own plants and R&D labs. Are they competent enough to do that?

Heck, let Tata build a completely indigenous diesel engine first.

You are claiming that this cost escalation is due to everything else other than HAL's incompetency, so the burden of proof lies on you to show the cost break-up and why it is higher in Indian case. The fact that HAL is responsible for building aircrafts and there are hardly any Indian birds in IAF tells a lot about HAL.

Atleast @PaliwalWarrior tried to justify the cost escalation through taxes, which did not make sense. As long as you cannot give cost break-up, all that you wrote above would make no sense. And when you say 0 economy of scale even after building more than 150 birds, it says a lot about their efficiency!

 

[Mad Indian]

As per wiki, it cost 358 Cr. (much less than 440 Cr.)
https://en.wikipedia.org/wiki/Sukhoi_Su-30MKI

As per OLD link of India Today, 350+Cr.
http://indiatoday.intoday.in/story/...re-than-ones-bought-from-russia/1/223960.html

However, we must also understand this package includes what All ? Only Fighters OR missiles+maintenance equipment.

Regards,
Ashish

Yes ,the cost has remained the same even after 3 years of 6-8% inflation.

In other words, i am Sure comparing the price of 2015 cost from rus and 2012 costs from Hal is how you accurately compare the two #fanboys

 

[PaliwalWarrior]

Yes ,the cost has remained the same even after 3 years of 6-8% inflation.

In other words, i am Sure comparing the price of 2015 cost from rus and 2012 costs from Hal is how you accurately compare the two #fanboys

cost will remain the same throughout the contract period (unless the contract allows for annual appreciation ot escalation )

the cost excalation has nothing to do with the no of years but with contract clauses

india did not buy or contract 272 Su30MKI all at one go

but they did so in batches

so it is reasonable to expect the the costing for all batches will be different and higher in case of latest batches

 

[PaliwalWarrior]

You are claiming that this cost escalation is due to everything else other than HAL's incompetency, so the burden of proof lies on you to show the cost break-up and why it is higher in Indian case. The fact that HAL is responsible for building aircrafts and there are hardly any Indian birds in IAF tells a lot about HAL.

Atleast @PaliwalWarrior tried to justify the cost escalation through taxes, which did not make sense. As long as you cannot give cost break-up, all that you wrote above would make no sense. And when you say 0 economy of scale even after building more than 150 birds, it says a lot about their efficiency!

bhai read and understand what is posted

he never said 0 economy of scale

what he said was

he economy of scale applicable in russia is higher than that applicable in indian plant

 

[Sakal Gharelu Ustad]

bhai read and understand what is posted

he never said 0 economy of scale

what he said was

he economy of scale applicable in russia is higher than that applicable in indian plant

He should have written one has higher economies of scale as compared to the other. I will quote again:

"The former has economy of scale. The latter does not."

But even if we agree there is difference in economies of scale even after producing 150 crafts, at least show a cost break-up to boost your claims that it is indeed huge.

 

[Mad Indian]

Let's talk economics now.


When we manufacture a jet for 1000 crores-it means that our opportunity costs is for 1000 crores. That means, instead of manufacturing something worth 1000 crores, we spent 1000 crores manufacturing the fighter jet. This is what it means when Hal manufactures a jet for 1000crores- it means we have spent 1000 crore worth of resources into it.

To give an analogy, let me give a simplified alternate example. Let's say me and my brother are carpenters by specialisation. Both of us manufacture benches worth 100 rupees per month each. But since we are carpenters, we can't produce clothes as efficiently . so we can produce clothes worth only 10 rupees each per month. But let's say a neighboring family, with two weavers, is there which can produce clothes at a rate of 100 rupees per month . but they can produce bench worth rupees 10 per month.

So if my family , which needs both bench and clothes, decides that our money, should not go to neighbors, my bro and I have to work on clothes and benches. So if one of us works on benches, other has to works on clothes. So we will produce total of 100 rupees worth bench and 10 rupees worth clothes. So , our total economic output is 110 rupees per month. Similarly the other family will produce 100 rupees worth clothes and 10 rupees worth benches, if they decide to do it by themselves. So totally they would be only 110 rupees per month in economy

But, if we want to maximize our wealth- we have to produce 100 rupees worth benches each so that my family is worth 200 rupees per month.and the neighbor family should produce 100 rupees worth clothes per month so that they are worth 200 rupees each. Then we can trade 100 clothes for 100 benches and so finally we would be each having 100 clothes and 100 benches each instead of 100 benches and 10 clothes in my family and 100 clothes and 10 benches inneighboring family


This is why, trading is better. And this is why it is smarter to buy a product from abroad than produce it locally, specially if the locally produced product is more expensive.

 

[Mad Indian]

cost will remain the same throughout the contract period (unless the contract allows for annual appreciation ot escalation )

the cost excalation has nothing to do with the no of years but with contract clauses

india did not buy or contract 272 Su30MKI all at one go

but they did so in batches

so it is reasonable to expect the the costing for all batches will be different and higher in case of latest batches

Irrelevant non sequitur. Textbook fanboyism, using acquisition cost and manufacturing costs as and when needed to suit your narrative when the link clearly says that the cost in question is manufacturing costs. We are talking about manufacturing costs and "not "costs of acquisition. Even then, 60% cost discrepancy can't be washed away specially when labour is cheaper in india

 

[Mad Indian]

Now apply the same economics in this specific example if our govt spends 1000 crores on buy a jet X. It means an opportunity cost of 1000 crores. But if the same jet is available for 200 crores abroad, then we save 800 crores in opportunity costs. This 800 crores can be then used for making some other goods which we are good at making. Hell, instead of the 1 jet we manufacture, we can buy 5 jets.


Note that Russia can't be selling jets to us infinely without buying something else from us in return. The rupees which wepay for the jets will have to be used forbuying something they want from us because unless they buy from us, all theywill be having is worthless pieces of paper(rupee notes)

 

[Sakal Gharelu Ustad]

Ok. I got hold of the CAG report finally. Those of you are patient can go through it here on page 36 about denial of Offset benefits of Rs 2,711 crore in acquisition of an aircraft: http://cdasecbad.ap.nic.in/sankalan... Comptroller and Auditor General of India.pdf

I will post some important points:

1) The cost quoted by OEM(ie Russia) in this case was Rs 9,036.84 crore for 40 aircrafts which come down to 225 crore for single bird. That is where the 225 crore cost come from.

The price negotiation with the Russian Original Equipment Manufacturer (OEM) was done vis-a-vis a contract concluded in 2007 for `Swap' of older `M' aircraft with newer version, i.e prices negotiated were with reference to direct supply of aircraft from OEM rather than manufacture by HAL.
While initiating the acquisition, Air HQ had recommended that the procurement of aircraft be done directly from Russia as this would result in early delivery of the aircraft.

So, 225 crore is the cost quoted by Russians to deliver 40 Su-30 MKI in March 2007.

2) Imported components reach 95%

The categorisation `Buy (Indian)' implies that the indigenous content is a minimum of 30 per
cent when the systems are being integrated by an Indian vendor. However, in the contract concluded, the indigenous content was only five per cent with 95 per cent of material being imported.

3) Look at the table above. HAL is glorified assembler according to CAG. Given that HAL could not manufacture things on time, the cost has escalated. The delivery was supposed to be between 2008-2011.

But at least one thing gets clear that this 225 crore figure was quoted by OEM for Su-30 MKI.

 

[pmaitra]

You are claiming that this cost escalation is due to everything else other than HAL's incompetency,

No. I am not claiming. I am asking. "Rs. 440 cr - Rs. 227 cr = Rs. 213 cr. What is it for? Does man-hour alone justify this? Or is this extra cost due to man-hours and components?"

I write one thing. You read something different.

so the burden of proof lies on you to show the cost break-up and why it is higher in Indian case. The fact that HAL is responsible for building aircrafts and there are hardly any Indian birds in IAF tells a lot about HAL.

Burden of proof on me? For what? Am I the one making claims?

This is what you said.

Probably, that's why HAL babu's don't give a damn about efficiency.

You are claiming that HAL's babus don't give a damn about efficiency. Then, you are speculating as to why they don't give a damn about efficiency, and you are using the term "probably" about the reason why. So, the burden of proof lies on you to establish your premise that HAL babus don't give a damn about efficiency.

Atleast @PaliwalWarrior tried to justify the cost escalation through taxes, which did not make sense. As long as you cannot give cost break-up, all that you wrote above would make no sense. And when you say 0 economy of scale even after building more than 150 birds, it says a lot about their efficiency!

I think @PaliwalWarrior clarified that in India, it is not zero, but less than that of Russia.

So far:

• There is no cost breakup. I asked for a CAG report. I will look at your latest post later.
• The very first and second batches of Sukhoi-30MKIs did not have front canards.
• The real cost reported in various sources are different.

He should have written one has higher economies of scale as compared to the other. I will quote again:

"The former has economy of scale. The latter does not."

But even if we agree there is difference in economies of scale even after producing 150 crafts, at least show a cost break-up to boost your claims that it is indeed huge.

You are right. Economy of scale is not measurable. Rather, it is comparative. So, yes, Russian production has higher economy of scale than Indian production.

India made how many? 150.

Russia itself has over 400 Sukhoi-27s, and over 50 Sukhoi-30s, plus several hundred Sukhoi-27s and Sukhoi-30s that it made and sold all over the world. On top of that, there are other planes of the same family, such as the Sukhoi-34. If you have common parts across several related but different planes, that economy of scale for that part extends across all those similar and different planes.

Across Sukhoi-27 and Sukhoi-30, and excluding Sukhoi-34, a little more than 1,300 have been built. Now compare that with 150.

 

[Sakal Gharelu Ustad]

No. I am not claiming. I am asking. "Rs. 440 cr - Rs. 227 cr = Rs. 213 cr. What is it for? Does man-hour alone justify this? Or is this extra cost due to man-hours and components?"

I write one thing. You read something different.


Burden of proof on me? For what? Am I the one making claims?

This is what you said.

You are claiming that HAL's babus don't give a damn about efficiency. Then, you are speculating as to why they don't give a damn about efficiency, and you are using the term "probably" about the reason why. So, the burden of proof lies on you to establish your premise that HAL babus don't give a damn about efficiency.

A similar Sukhoi is produced by Russia for much cheap. Now, you are claiming that su-30 MKI is very different and hence the price differential. So, burden of proof is on you that these new components cost a lot. Anyway, read my post about CAG report and it will become clear that 225 crore was actually quoted by the Russian manufacturer.

I think @PaliwalWarrior clarified that in India, it is not zero, but less than that of Russia.

So far:

• There is no cost breakup. I asked for a CAG report. I will look at your latest post later.
• The very first and second batches of Sukhoi-30MKIs did not have front canards.
• The real cost reported in various sources are different.

You are right. Economy of scale is not measurable. Rather, it is comparative. So, yes, Russian production has higher economy of scale than Indian production.

India made how many? 150.

Russia itself has over 400 Sukhoi-27s, and over 50 Sukhoi-30s, plus several hundred Sukhoi-27s and Sukhoi-30s that it made and sold all over the world. On top of that, there are other planes of the same family, such as the Sukhoi-34. If you have common parts across several related but different planes, that economy of scale for that part extends across all those similar and different planes.

Across Sukhoi-27 and Sukhoi-30, and excluding Sukhoi-34, a little more than 1,300 have been built. Now compare that with 150.

You can count all the planes built by Sukhoi since its inception in 1939!! Btw, HAL was supported to assemble 140+40 planes. Still I will give it to you that Sukhoi has better economies of scale, but HAL is just an assembly unit in this case. Why would I assemble 95% foreign stuff, if I can buy it for cheap!

 

[Yumdoot]

Bhaad mein jaye 'onus of proof'.

While importing cheap at the cost of indigenous production, is not a panacea still it can be done for some cases - like a new relationship (read Rafale) or for exigencies (read Su-30MKI).

What is completely erroneous is the conclusion that if HAL cannot make it then lets import. The right conclusion from Indian POV is 'more plus more indepth indigenization'. Only when our domestic industry gets to make several different things will they be able to make it cheap for the end user. End User, first instigating the exigent situation, then abusing that to avoid responsibility ending up forcing imports in is simply a non-argument.

Having carved out some circumstances where imports may be ok, I need some clarifications of my own.

http://cdasecbad.ap.nic.in/sankalan/COMMON/Report 18 of The Comptroller and Auditor General of India.pdf

I will post some important points:

1) The cost quoted by OEM(ie Russia) in this case was Rs 9,036.84 crore for 40 aircrafts which come down to 225 crore for single bird. That is where the 225 crore cost come from.

I am sorry but I could not reach the figure of ~225 Crore. I don't know what you read or calculated but the image you posted for 20+16+4 Su-30MKI, itself says:

As can be seen, excepting for four, HAL would not have a major role to play in the manufacture of these aircraft. Further, HAL had already obtained the benefit of ToT in terms of the Licensed Production of 140 aircraft `M' and was operating under maximum capacity utilisation. Thus, it would appear that involvement of HAL was only to obtain `Buy (Indian)' classification for the project. Had these aircraft [inserted-presumably 20+16] been procured directly from the OEM over-head charges and profit to the extent of Rs 60.48 crore payable under the schedule of payment with HAL could have been avoided.

In other words that is the difference of the sales price of HAL vs OEM are very near to each other. This I admit can be put down to "only the small stuff is done by HAL" hence only "small cost increases".

HOWEVER:

There is a subsequent CAG report - by an Ex-Defence Secretary & currently CAG, from which I am quoting only facts made in the context of the larger picture:

The net increase in cost of ` 17,483.17 crore (` 22,122.78 crore to ` 39,605.95 crore) was due to escalation of price, cost of DRE and technical kits. The additional outflow of ` 2,734.92 crore (USD 594.54 million) was due to change in phase composition of the technical kits. As brought out in para 9.1.2.3, MoD compressed the delivery schedule to secure completion of deliveries of all the 140 aircraft by 2014-15 instead of 2017-18. This compression was after signing of Inter Governmental Agreement (October 2000) and General Contract (December 2000) and preparation of DPR. As the progress of indigenization was not at the same pace as envisaged in compressed delivery schedule, the import content increased.

So the cost increase was on account of:
1) Price Escalation (most likely contracted for)
+
2) Deferred Revenue Expenditures (pain period of tech absorption will create this hike, considering the lower tech base, which in turn justifies indigenization)
+
3) Cost of Kits (indigenous kits would most likely be higher in cost considering lower tech absorption).


The need to compress delivery schedule is going to adversely affect tech absorption is also admitted to by this CAG when he states:

The compression of deliveries also decreased the degree of absorption of technology from time to time and the project cost stood revised from ` 22,122.78 crore to ` 39,605.95 crore, an increase of 79 per cent in the project cost

If this is actually the case, then even so, again this has to be about indigenization first and not about imports first.

I had always doubted that people had even in fact the correct information in this debate. The whole debate started from an unattributed non-quote aka opinion from a main stream media brand that is known to peddle anti-India views. The report is in the first post of this thread.

Here is how I see it. Judge for yourself. Note nothing new about the links. All links already posted by others. My contribution was only to juxtapose the info for the rest of us. Notice the difference is Rs. 237 Crore per unit vs. 283 Crore per unit (Import vs. HAL, at comparative cost considerations at one single point)

This is nothing close to 220 vs. 440 drama being palmed off as Gods Truth from the Holy Bhest.

Now I know why @Mad Indian did not post the source material when asked for by two of us.
He did not have it with him

Another case of western lies. Guys somebody in the know is deliberately putting out this information because they know how you western fanboys would react and then all this debating will take your case down in the ditch.

 

[Sakal Gharelu Ustad]

Bhaad mein jaye 'onus of proof'.

While importing cheap at the cost of indigenous production, is not a panacea still it can be done for some cases - like a new relationship (read Rafale) or for exigencies (read Su-30MKI).

What is completely erroneous is the conclusion that if HAL cannot make it then lets import. The right conclusion from Indian POV is 'more plus more indepth indigenization'. Only when our domestic industry gets to make several different things will they be able to make it cheap for the end user. End User, first instigating the exigent situation, then abusing that to avoid responsibility ending up forcing imports in is simply a non-argument.

Having carved out some circumstances where imports may be ok, I need some clarifications of my own.




I am sorry but I could not reach the figure of ~225 Crore. I don't know what you read or calculated but the image you posted for 20+16+4 Su-30MKI, itself says:



In other words that is the difference of the sales price of HAL vs OEM are very near to each other. This I admit can be put down to "only the small stuff is done by HAL" hence only "small cost increases".

HOWEVER:

There is a subsequent CAG report - by an Ex-Defence Secretary & currently CAG, from which I am quoting only facts made in the context of the larger picture:



So the cost increase was on account of:
1) Price Escalation (most likely contracted for)
+
2) Deferred Revenue Expenditures (pain period of tech absorption will create this hike, considering the lower tech base, which in turn justifies indigenization)
+
3) Cost of Kits (indigenous kits would most likely be higher in cost considering lower tech absorption).


The need to compress delivery schedule is going to adversely affect tech absorption is also admitted to by this CAG when he states:


If this is actually the case, then even so, again this has to be about indigenization first and not about imports first.

I had always doubted that people had even in fact the correct information in this debate. The whole debate started from an unattributed non-quote aka opinion from a main stream media brand that is known to peddle anti-India views. The report is in the first post of this thread.

Here is how I see it. Judge for yourself. Note nothing new about the links. All links already posted by others. My contribution was only to juxtapose the info for the rest of us. Notice the difference is Rs. 237 Crore per unit vs. 283 Crore per unit (Import vs. HAL, at comparative cost considerations at one single point)

This is nothing close to 220 vs. 440 drama being palmed off as Gods Truth from the Holy Bhest.

Now I know why @Mad Indian did not post the source material when asked for by two of us.
He did not have it with him

Another case of western lies. Guys somebody in the know is deliberately putting out this information because they know how you western fanboys would react and then all this debating will take your case down in the ditch.

Did you even read the report I posted? It clearly said-
The price negotiation with the Russian Original Equipment Manufacturer (OEM) was done vis-a-vis a contract concluded in 2007 for `Swap' of older `M' aircraft with newer version, i.e prices negotiated were with reference to direct supply of aircraft from OEM rather than manufacture by HAL.

So the price 9036 crore for 40 aircrafts was what Russia quoted and it was not renegotiated when HAL was asked to produce it. So price quoted by Russia- 9036/40 = 225 crore per bird. Since HAL was importing 95% stuff, it did not make sense to ask them manufacture anything. On top of that HAL was not able to deliver anything on time. But important point here is that this 225 crore was quoted by Russians for Su-30 MKI, which HAL defenders were saying was for stripped down Su-30.


Also look at the latest contract. Price per aircraft = 16147/42 = 384 crore. Given inefficiency and delay on HAL's end it is not a surprise that this price has now escalated to 440 crore/Su-30 MKI now.

At least get your calculations right.

 

[Yumdoot]

Ok got it Note No. 27 on page 37 of your link.

Look again I had to find the same thing from another report.

But no way is the differential as big as you people are trying to make it look. And this small difference should be acceptable considering the deep tech transfer that will help in times of war.

http://ajaishukla.blogspot.in/2014/10/first-sukhoi-30-overhauled-at-nashik.html

Of the 43,000 components that go into a Su-30MKI, 31,500 components --- or 73 per cent --- are now being built in India.
<snip>
53 per cent of the engine by cost has been indigenised, with the remaining 47 per cent consisting of high-tech composites and special alloys --- proprietary secrets that Russia will not part with. Even so, HAL builds 87.7 per cent of the engine’s components in India.

For this somewhat higher price at HAL, the same can be more than offset by

HAL officials say overhauling in India costs far less than what “original equipment manufacturers”, or OEMs, charge --- typically 35-40 per cent of the cost of a brand new fighter.

So cheers.

Also note its nothing like the rip off by the French for their Rafale.

 

[Sakal Gharelu Ustad]

Ok got it Note No. 27 on page 37 of your link.

Look again I had to find the same thing from another report.

But no way is the differential as big as you people are trying to make it look. And this small difference should be acceptable considering the deep tech transfer that will help in times of war.

http://ajaishukla.blogspot.in/2014/10/first-sukhoi-30-overhauled-at-nashik.html


For this somewhat higher price at HAL, the same can be more than offset by


So cheers.

Also note its nothing like the rip off by the French for their Rafale.

Not to forget French did not want to cooperate with HAL because of the same efficiency!

 

[Mad Indian]

Now I know why @Mad Indian did not post the source material when asked for by two of us.
He did not have it with him

I did. You are just stupid like all the fanboys here or you are here with an agenda to justify your bread and butter(HAL). The very first post I post had the quote from the article from which I posted it. I again quoted the article when I replied to another fanboy.

 

[Peter]

I do not know too much about the current sate of HAL. However I believe that splitting up HAL would end up giving us more trouble than doing good. There would be little coordination among the different branches. Instead of splitting up HAL efforts should be made to change its organizational structure and increasing the salaries of its workers. You cannot retain the best employees if you do not pay them well.

 

[PaliwalWarrior]

I am not a defence expert butI remember at the time of Su MKI was planned Offset was there . As i had heard then that Russians will need to set up factory here to produce few parts and a share of money has to be invested back in India... Will further dig into it.

pl check it

there was no offset policy in india at the time of Su30MKI deal

the russian plant in india can be a part of contract commitments (instead of offsets)

when we talk about costing

what we talk about genreally is only the HAL plant that integrates SU30MKI at nasik (i dont know the escat location)

we talk about the investment and overheads of this plant

but then HAL also produces the Su30MKi engines in india - with localisation to a certain extent ( not 100%)
ok now add another plant costing to the equation then add its overheads

while in case of russia - the same costing is applicable but there the engine makers dont only produce the Engines for Su30 many different planes and a lot more engines for different versions of Su30

than the no produced by HAL for IAF Su30MKI

then lets talk of small components costing

1. Till some time back the tyres of Su30MKI were imported from Russia
the import was being one as no local mfg produced them due to low volumes as it did not justify investments in R&D and setting up a dedicated plant for it

then in april 2014 MRF got certification for its products and the impoact on costings would be 35% savings in cost

so while the Su30MKI is made in india and we think it should be cheaper with Indian labour the fact remains that many low volume items for which it is not cost efffective to setup Plant the parts continue to get sourced from russia or russian OEM at higher prices and thus not giving us the effect of lower labour costs in India

now just imagine in the above case if HAL / MRF decided the setup dedicated plant for this particular item - it will drive teh costs UP not down

http://economictimes.indiatimes.com...-for-sukhoi-aircraft/articleshow/33670791.cms

2.
when we compare the Indian labour costs and foreign labour costs

we mak a blanket comparision that foreign costs will alwyas be higher and Indian costs will be lower

we blindly assume the same
which may not be true in all cases

eg
the labour costs will be higher in case of US Germany UK etc some specific countries
but the same may not be true blankately for all EU countries

the labour costs in China are lower than that in INdia


the assumed labour costs advantage may not be so big in case of India / russia comaparision

ALSO

On one side we are saying that we should pay higher salaries to people who join PSUs to make better people join PSUs and increase its preformance

on the other hand we want the PSUs to keep its labour costs low and reduce teh costs just through labour only (pl note the labour in such industries are Engineer level people not 5th pass people)

if we want to attract the best of the talent to PSUs like HAL - a lot of people here suggent better pay

if we pay better how can costs be lowered ?


contd ...

 

[Yumdoot]

@Peter
No you are creating an argument to match what you wish for.

Helicopters, SLVs, Military Aircrafts, Civilian Aircrafts, UAVs, Overhauling Aircrafts/Engines - all constitute different categories and different final products and all of these take individually demand a separate though pattern.

Today what is happening is that, because of a stupid Rafale deal our people are even unwilling to talk about the Ardiden Engine follow-up. Obviously the French know how to make helo engines better than the rest of the world. We should have had by now at least 800+ helos flying. That itself would require close to 5000 engines. But because all the limelight and budget is being sucked by the Rafale, the follow on engine for the future LCH is not even being talked about. We don't have as pressing a need for Rafales as we have for helos. Helos are the lifeline in the Himalayas. Currently as things are our Army will have a hard time fighting along the Himalayas because of ordinary Helo support. Notice while we are going to import helos the Chinese have taken up the offer for the upgradation of the Mi-26. Remember how important the helos are in the Earth quake hit mountains. Should give you ideas about how much they are helpful for the foot soldiers.

 

[PaliwalWarrior]

View attachment 6273 Ok. I got hold of the CAG report finally. Those of you are patient can go through it here on page 36 about denial of Offset benefits of Rs 2,711 crore in acquisition of an aircraft: http://cdasecbad.ap.nic.in/sankalan/COMMON/Report 18 of The Comptroller and Auditor General of India.pdf

I will post some important points:

1) The cost quoted by OEM(ie Russia) in this case was Rs 9,036.84 crore for 40 aircrafts which come down to 225 crore for single bird. That is where the 225 crore cost come from.

The price negotiation with the Russian Original Equipment Manufacturer (OEM) was done vis-a-vis a contract concluded in 2007 for `Swap' of older `M' aircraft with newer version, i.e prices negotiated were with reference to direct supply of aircraft from OEM rather than manufacture by HAL.
While initiating the acquisition, Air HQ had recommended that the procurement of aircraft be done directly from Russia as this would result in early delivery of the aircraft.

So, 225 crore is the cost quoted by Russians to deliver 40 Su-30 MKI in March 2007.

2) Imported components reach 95%

The categorisation `Buy (Indian)' implies that the indigenous content is a minimum of 30 per
cent when the systems are being integrated by an Indian vendor. However, in the contract concluded, the indigenous content was only five per cent with 95 per cent of material being imported.

3) Look at the table above. HAL is glorified assembler according to CAG. Given that HAL could not manufacture things on time, the cost has escalated. The delivery was supposed to be between 2008-2011.

But at least one thing gets clear that this 225 crore figure was quoted by OEM for Su-30 MKI.

ok so this cost 225 crores is for the Su30MKI supplied by russia for a batch of 40 SuMKI in 2007

you forget to account for 1 more thing in this - the buy back price of the older M version which was swapped with the new Su30MKI
pl read the below

"The price negotiation with the Russian Original Equipment Manufacturer (OEM) was done vis-a-vis a contract concluded in 2007 for `Swap' of older `M' aircraft with newer version, i.e prices negotiated were with reference to direct supply of aircraft from OEM rather than manufacture by HAL.
While initiating the acquisition, Air HQ had recommended that the procurement of aircraft be done directly from Russia as this would result in early delivery of the aircraft."

Here it is itself specified that the deal was a swap deal

india gave back its older M version 40 Su30 M and Got new Su30MKI
now the question is what was the Buy Back price of the Su30 M which india traded In for newer Su30MKIs ?

because that needs to be added to 225 crores to arrvie at the true standalone cost of Su30MKI bought in that 40 batch

These 40 were used by the RuAf then 18 were refurbshed and sold to some other counry in ASEAN region

So it turns out that the quoted 225 crores is not the true standalone costs of Su30MKI even at that point of time and hence not comparable to SU30MKI costs mfg in india in 2007 even

Forget about comparing that figure with costs of Su30Mki mfg in India in 2014 - 2015

for eg

i have a car which i used for 5 years then i want to buy a new car
i go and select a car costing rs 5 lac then i ask the dealer for a buy back ( trade is / swap old for new ) scheme

the dealer / co says we will offer you a back back price of Rs 1 lac on your old car

nowmy deal price is Rs 4 lac for a new car

now say i want one more car for my brother / wife etc or some other perosn wants to buy the same car
now i finalise the same car costing Rs 5 lacs
but this time i dont have an old car to trade in / swap / buy back

and i buy the same car for rs 5 lacs

so what does it mean ?

in case of Su30MKI

some portion of the difference in prices may be due to the trade in / swap old for new component - how much we dont know - but it will be substantial

Furthur as i said earlier and everyone here knows that india did not sign a single contract for 272 Su30MKIs

now you dont really expect the same prices for Su30MKI in the last batch or deal that we made to be same as that we did in 1998 / 2002 / 2007 do you ?

there are bound to be cost escalations in two ways

1. contract to contract batchwise

2. even for same contract - there may be an annual escalation clause which permits annual increase of prices by 2-5% per annum (max 3% in case of russia in past deals)