Ø The success of Make in
India critically hinges on country’s success in creating a robust aerospace
industry, but a vacuum occupies the core of the government-dominated sector.
Classified official reports on the state of affairs in defence production and
delivery in the aerospace sector present a revealing picture. Official studies
have been conducted in recent years into India’s ambition to emerge as a major
aerospace manufacturer that can design and build its own aircraft and related
systems. All those reports remain confidential, and the government has taken
almost negligible action on them to improve the situation, according to an
assessment by The Hindu. The studies show that the Hindustan Aeronautics Ltd,
Bharat Electronics Ltd, Bharat Dynamics Ltd and Mishra Dhatu Nigam Limited
(MIDHANI) —all of them enjoying virtual monopoly in defence aerospace sector —
have been booking profits over the years not from their businesses. Instead,
they take huge advances from the military against future deliveries, earn
interest on them, and show them as profits. Then they award a significant part
of the so-called profit to their majority shareholder, the government. With
annual defence budget growing at a healthy rate, and defence forces under
pressure to spend them within the financial year, it is now a well-established
practice for them to give away significant advances to the defence PSUs, even
if there is significant delay in production, and products are not delivered for
years. That cycle is adding to what is plaguing the DPSUs, the reports point
out. “Although, the profits have been increasing, a major portion of the profit
has been from ‘other income’ not related to aircraft repair, maintenance,
manufacture/overhaul. Significant portion of the other income comprises the
‘negative’ financing cost due to the interest accrual on advances from Defence
Customer for the huge order book,” says the latest report on aerospace sector,
submitted in April 2014 and written by a team of officers led by Air Marshal M.
Matheswaran. “HAL is an engineering company in the aerospace sector. It should,
by and large, make profits from manufacturing and sale of aeronautical products
and allied services in MRO … HAL has very little incentive to create profits
through quantity, quality and innovation,” the report says. How it makes profit
is an eye-opener. The HAL receives advance from the military, almost three
times its annual turnover. In 2010-11, the financial turnover was a bit over Rs. 13,000 crore, but the order book was Rs. 68,265
crore, against which HAL took advance of Rs. 35,146
crore from its customers. On that advance, it earned an interest income of over Rs. 2,200 crore, and booked a profit after tax of Rs. 2,114 crore. That year, HAL paid the government, its majority
shareholder, a dividend of Rs. 423.12
crore. “HAL is not a financial institution that makes money from money; it is
meant to be an aeronautics engineering company,” the Matheswaran report points
out. It points to “large scale contribution [more than 70 per cent] of other
income [interest on advances etc.] in the profitability of the company. The
company’s income has been rising mainly from non-core activities. In the last
ten years, other income from interest etc. has grown nearly eight times whereas
the net profit after tax has appreciated only 2.8 times,” the report says. With
a captive customer base, and no government demand on performance improvement,
HAL has become an predominant assembler of systems for the Indian military. Its
exports have remained negligible: In 2012-13 it exported just Rs. 382 crore worth of systems, the report points out. The huge
advances against future orders are collected at a time when DPSUs have order
books that extend beyond 15 to 20 years. “In theory, at current rates of
production and overhaul, HAL would need several decades just to meet the
current order book,” the report says, even as it highlights the fact that HAL
has stopped indicating its order books since 2010-11 in public reports. With
over 10,000 employees, BDL is a Navratna DPSU since June 2007 and has nine
production units and 31 manufacturing divisions. It produces electronic warfare
systems, avionics components etc. for aircraft. “Like HAL, Bharat Electronics
Ltd also enjoys assured orders and large advances from MoD. Its sales/turnover
have been rising consistently along with profits,” the report points out. More
than 70 per cent of its income has been coming mainly from non-core activities.
The report points out that BEL’s income from other sources, especially against
advance taken from the military, almost doubled between 2010 and 2013. In 2012-13,
other income of BEL stood at Rs. 723.35
crore. A manufacturing base for guided weapons systems, BDL has been the prime
production agency for the Integrated Guided Missile Development Programme.
“Like other DPSUs, the profitability of the company is mainly due to heavy
advances received from MoD. In fact, other income of BDL has been more than the
profit of the company.” The report points out that the company has been making
losses in its core activities and “has been showing profit only due to large
order book & advances received from the Government.” In 2013, the company
had a turnover of Rs. 1,074.71
crore, had taken an advance of Rs. 4,899
crore from the government and earned almost Rs. 522 crore
on it, and booked it as other income. It also says that BDL is overbooked far
beyond its capacity with the requirement of ATGM (anti-tank guided missile) and
SAMs (surface to air missiles). It almost enjoys a monopoly in missiles
production within India due to government restrictions. Against an annual
turnover of just Rs. 1,100
crore the total value of AON (acceptance of necessity) with the company was
over Rs. 35,000 crore. MIDHANI is equipped for metallurgical facilities to
make super-alloys, titanium, special purpose steels etc. for aerospace,
defence, atomic energy etc. “The financial analysis of the company for the last
two financial years indicates increase in sales revenue and net profit. The
profitability of MIDHANI like other DPSUs has a significant contribution of
other income generated by the interest accrued on advances received from its
customers,” the Matheswaran report says.
Ø India’s Vice-President Hamid Ansari on Wednesday told the
leadership of Thailand that India-Thailand collaboration is necessary to ensure
freedom of navigation and connectivity in the Southeast Asian region. “As
maritime neighbours, we have a shared interest in the security of international
sea lanes of communication and commerce. Our resolve to strengthen our
bilateral engagement in the areas of security and defence will help the region
as a whole and promote regional economic integration and connectivity,” Mr.
Ansari said while addressing the state banquet hosted in his honour by the Thai
Prime Minister Gen. Prayut Chan-o-cha. During the ongoing tour of Southeast
Asia, the Indian delegation led by Mr. Ansari has expressed Indian concerns
about freedom of navigation in the region due to growing maritime disputes
between China and several other regional countries over South China Sea. “Our
position on resolving the South China Sea dispute is well known and we want it
to be settled peacefully. Thailand has been the country coordinator of
ASEAN-China relations and took useful steps towards solving the dispute. We
hope Singapore, too, [the current coordinator] will take similar steps,” said
Mr. Anil Wadhwa, Secretary (East), in course of a briefing held in Bangkok.
Ø
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