Home >Companies >HAL,BEL beat pvt rivals to win Rustom project

Bangalore: State-run Hindustan Aeronautics Ltd (HAL) and Bharat Electronics Ltd (BEL) have jointly won a bid to design and build Rustom, an unmanned aerial vehicle, or drone, for India’s defence research agency.

Unmanned aerial vehicle: DRDO’s Rustom prototype displayed during Aero India 2009 at Air Force Station Yelahanka, Bangalore. Hemant Mishra/Mint

Rustom would be a medium-altitude, long-endurance aircraft, to be designed to fly at least 250km at a stretch.

It’s the third large Indian defence project in the race for which private firms lost out to public sector rivals. India opened up defence equipment development and manufacturing to the private sector in 2002 in a move aimed at stepping up indigenization of military equipment. India still imports nearly 70% of its weapons and aircraft.

In the US, the government encourages?private?sector firms such as Boeing Co. and Lockheed Martin Corp. to compete for military projects and funds only the development cost of planes and weapon systems.

“HAL-BEL gave us a clear road map for manufacture," said Prahlada, chief controller of research and development at the Defence Research and Development Organisation (DRDO). He goes by one name.

In 2008, HAL was preferred over Godrej, L&T and Mahindra and Mahindra Ltd to build Saras, a 14-seat passenger plane, by National Aerospace Laboratories after its main customer, the Indian Air Force, insisted on the military plane maker.

BEL was selected in March this year to build the Indian Army’s tactical communication system, a contract of at least $1 billion (Rs4,450 crore). It was to be the biggest military project till date thrown open to domestic private companies. Seven firms, including L&T, the Tatas and Roltas Thales Ltd, a joint venture of Roltas India Ltd and France’s Thales Group, bid for the contract.

“This is a disappointment for us since we had been told that the projects would be open for participation by the private sector on a competitive basis," said M.V. Kotwal, vice-president for the aerospace and defence business at L&T, India’s largest engineering firm. “Otherwise we would not have spent the time and efforts in preparing for the bids. Detailed plans for execution had also been presented as required," he said.

L&T, which makes submarines and ships for the Indian Navy, bid for all the three contracts. TASL did not respond to emails for comment.

A defence ministry official, who is familiar with two of the three projects mentioned, said decisions were taken in favour of the defence public sector undertakings after assessing the capability of vendors for specific projects. He did not want to be named due to the sensitive nature of the business. An HAL official, who did not want to be named, said though the firm had been invited for technical talks, the Aeronautical Development Establishment, a DRDO agency, is yet to place an order.

In the Rustom contract, firms need to invest Rs400 crore in prototypes and trials that could take at least a decade, but there was no guarantee of an order from the armed forces once it is completed, said one official at a private firm who did not want to be named or his company to be identified. An HAL official confirmed this.

“If there is no assurance of an order, why should the private industry come forward and invest? We know it takes time to profit, but at least we don’t want to lose money," the same company official said.

Analysts say that it would take time for the defence ministry to involve private participation in equipment design and manufacturing.

“The process does take a little time. There are efforts made in DPP (the defence procurement procedure) to involve private industry. But I think much more can be done," said N.S. Sisodia, director general of the Institute for Defence Studies and Analyses. He did not comment on individual contracts.

The defence ministry has brought in a made-in-India category in its latest DPP, which favours local firms in defence equipment design and manufacturing.

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