Keeping HAL Beyond Corruption

by Jan 21, 2023Business & Infrastructure0 comments

As India’s leading defence company, Hindustan Aeronautics Limited (HAL) has long been at the forefront of the country’s armaments sector, but behind the scenes, a different story is unfolding. However, rampant corruption and vendor mismanagement threatens to bring the company, and India’s defence capabilities, to its knees. From delays and cost overruns, to poor quality output, these issues highlight the need for swift and decisive action to address the deep-seated problems at HAL.

The Defence Industry’s Dirty Secret: Vendor Mismanagement at HAL

In a recent study by the Stockholm International Peace Research Institute (SIPRI), HAL has seen significant growth in arms sales. The Indian defence company, known for manufacturing aircraft such as the LCA Tejas and Su-30MKI, as well as helicopters and trainer aircraft, was ranked 42nd in the study with $3.3 billion in sales for the year 2022. This is a notable jump from their ranking in 2021, where they placed 63rd with $1.8 billion in sales. HAL employs a variety of techniques in their manufacturing process, including utilising indigenous research, technology transfer, and licensing agreements. Additionally, the company has formed thirteen commercial joint ventures to expand their business operations.

HAL has long held a dominant position in the Indian armaments sector, thanks in part to the indigenization policies of successive Indian governments since independence. In 2018, the company went public, but its stock price has since decreased despite this advantageous position.

Despite its status as a ‘Maharatna’ company, HAL has been criticised for lacking effective leadership and for issues of corruption. The organisation has also been accused of being bogged down by bureaucratic red tape and cumbersome procedures. The company’s poor performance is not unexpected. The question of the company’s leadership, structure and strategy is important to address to lift the company up again.

A significant portion of instances of corruption and inefficiency within HAL can be traced back to the procurement of goods and services. The company has faced various accusations of corrupt behaviour. The government’s “Make in India” campaign, which aims to promote domestic manufacturing, begins with the registration of vendors as its first step. This marks the start of the procurement process.

Despite a clear understanding of rules and regulations, corruption can still occur due to the human factor. When there is an incentive for the company’s vendor approvers, the registration of vendors can be delayed, approved with conditions, or denied entirely. The campaign to ‘Make in India’ is a starting point in the battle against corruption and inefficiency in HAL’s procurement process.

The process of accepting materials is another aspect of corruption within HAL. Suppliers who fail to deliver materials on time are penalised 0.5% per week after the due date, yet the company’s acceptance process does nothing to penalise delays on their end in releasing payments. Payments are only made after thirty days have passed since the materials have been delivered.

Despite this, there remains a need for increased transparency in the acceptance of materials, which can take anywhere from several days to several months to complete. The reasons for rejection of materials can be questionable unless there is a clear advantage to the acceptance team. This process can take anywhere from one day to ten days. The process of accepting material is an issue that needs to be tackled to help with the overall corruption and inefficiency of HAL.

The process of obtaining quotes for materials and services is another source of corruption within HAL. The system allows for quotes to potentially become orders after a year, leading to potential price inflation and discrimination against vendors. The negotiator might also try asking a seller for oranges at the price of apples.

Flawed Defence: How Corruption at HAL Jeopardises the Quality of India’s Military Equipment

The procurement section is a key area where issues of quality begin to arise. The Indian Air Force (IAF) has had a concerning frequency of major aircraft accidents in recent years, and HAL’s output quality is believed to be a contributing factor. This is evident in the poor performance and technical issues found in the HAWK jet trainers and Su-30 MKI aircraft produced by the company. These issues, coupled with delays, raise serious concerns about the reliability and quality of aircraft produced by HAL.

For years, HAL has faced scrutiny for its poor product quality, delayed projects, non-adherence to delivery schedules, missed deadlines, and significant cost overruns. The release date of the LCA Tejas Mk II, among other projects such as the HTT-40 basic turboprop trainer, the IJT Sitara, the LUH, and the Light Combat Helicopter, remains uncertain.

In recent years, HAL’s credibility has significantly diminished, yet this inefficiency has had a positive impact on the private sector’s involvement in the Indian military aviation industry. Companies such as Airbus have partnered with Tata Advanced Systems Limited to manufacture the C-295 to replace the IAF’s ageing Avro aircraft, and rumours of a similar partnership between Airbus and Mahindra Aerospace to manufacture the LUH are circulating. HAL’s inability to deliver has helped to revitalise the Indian aerospace industry’s private sector.

The Central Vigilance Commission (CVC) oversees the operations of HAL through the appointment of its inspectors. However, it has been noted that the role of these inspectors is often met with a degree of scepticism, with vendors concerned about approaching the CVC due to the potential for reprisals from the vendor management team, as their names are openly displayed in the documents during the investigation.

The CVC must take proactive steps to investigate the rampant corruption and vendor mismanagement at HAL. Behind the scenes, HAL is plagued by delays, cost overruns, and poor quality output. This is just the tip of the iceberg, as corruption also undermines the technical quality of the products and services that HAL is providing. The CVC has the responsibility to review the state of affairs in HAL, to investigate the causes of these problems and to take appropriate actions to improve the situation and safeguard the country’s defence capabilities.

HAL has a goal to develop export markets, but this bureaucratic attitude can lead to legal troubles in foreign countries, if such practices are not addressed and improved within the organisation.

(The author is a Defence and Aerospace Analyst)

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