By Ayaskant Das
New Delhi: The Narendra Modi government’s decision to offload up to 15 per cent of its share in Hindustan Aeronautics Limited (HAL) has met with opposition from employees of India’s lone, state-run aircraft manufacturer.
But industry veterans feel a gradual disinvestment of the nation’s aerospace and defence behemoth can actually result in an increase in its operational efficiency, apart from ensuring timely delivery of equipment to the Indian Air Force (IAF).
On Aug. 27, in accordance with a decision taken by the National Democratic Alliance government, nearly 15 per cent of government shares in HAL were sold in the stock market through a public offering of shares. The central government, which raised approximately Rs 4,930 crore ($664 million) in the process, now has just 75.15 per cent stakes against 89.97 per cent it had earlier in HAL.
“The offloading of government shares in HAL will have no impact on service conditions of its employees. The government has sold a part of its stake in order to raise revenues that will be spent in other critical sectors of the economy,” said former HAL chairman-cum-managing director Dr R. K. Tyagi.
Soon after the Indian government decided to reduce its stake in HAL, the All India HAL Trade Unions’ Co-Ordination Committee wrote to the Prime Minister, expressing apprehension that disinvestment of the ‘Navratna’ (Nine Jewels) Public Sector Undertaking might result in loss of jobs.
“In the era of globalisation, the poor and Backward Classes and Scheduled Castes and Scheduled Tribes people of our country are finding it exceedingly difficult to compete for jobs created by the new economy. While all lower groups of jobs (Group C and D) in the public sector are now done through contractual labour, disinvestment in HAL will only further aggravate the situation, turning these youth to adventurist and anarchist movements,” the committee stated in its letter.
However, according to experts, even though the sale of shares through public offerings will have no impact on the overall functioning of HAL, the fear about job losses is at best a myth. On the other hand, the public sector unit will work towards greater accountability.
“The dilution in government ownership in the HAL will have no impact on jobs or service conditions of its employees. In fact, quarterly balance sheets had begun to be maintained at the HAL for the first time when the government had earlier offloaded 10 per cent of its shares,” Dr Tyagi said.
The employees’ union has argued that the government took away Rs 6,393 crore ($866 million) from the HAL in the year 2016-17 through a process called ‘buyback of shares’ and that any further disinvestment will result in lesser cash reserves to compete with the private sector for booking orders.
“A fixed percentage of the capital raised through the sale of shares should have been made available to the HAL in order to replenish its own cash reserves and upgrade infrastructure at its manufacturing units.
“Otherwise, this partial disinvestment does not help HAL at all. With more disinvestment, the onus increases on the Board of Directors of the company for being accountable to its shareholders. It’s a company that works for national security. It cannot be compromised for the sake of profits,” the employees’ union general secretary Suryadevara Chandrasekhar said.
Chandrasekhar, who is also the chief convener of the trade unions’ committee, further said that HAL’s contribution to the central exchequer in terms of annual revenue is set to decline after its shares are sold in the market. However, HAL’s profitability and operational efficiency has long been under the scanner of the central government.
It is a fact that over the years several Parliamentary Standing Committees on Defence have pulled up the HAL for its alleged inefficiency to deliver orders as per schedule. Audit reports by the Comptroller & Auditor General (CAG) of India have also not been generous over the manner in which HAL has been functioning over the years.
For example, in the 47th Report of the Standing Committee of Defence (2018-19), which was presented in Parliament of India in Jan. 2019, the HAL had been pulled up for delay in delivery of Intermediate Jet Trainer (IJT) aircraft for the IAF, owing to which the latter had to modify its training programme at the risk of the lives of its trainee fighter pilots.
“The Committee are perturbed to note that due to non-availability of IJT [Intermediate Jet Trainers] and failure on the part of HAL to deliver the same, despite being in the process since 1999, the Indian Air Force has had to modify their training programme from a ‘three level approach’ to two levels.
“This is indicative of an unsavory state of affairs. Training is a very critical component from the point of view of capacity building of air force. It involves lives of our valuable personnel and any lacuna on this front can possibly result into fatalities. Therefore, any delinquencies in this regard cannot be acceptable. Modification of the training pattern appears to be an effort to conceal the factual position of non-availability of IJTs,” the committee had noted in its report.
The committee also warned about cost escalations for the IAF owing to inordinate delay on the part of HAL in finalising the design and development of the IJT even after 18 years of the sanctioning of the project, apart from possible compromises made in the intensity of the training of its personnel.
The HAL had even been advised by the committee to ensure timely delivery of the basic trainer aircraft, that is the Hindustan Turbo Trainer-40 (HTT-40), after completing its design. It was only in Aug. 2020 that the Defence Acquisition Council cleared the purchase of 106 basic HTT 40 aircraft from the IAF, after years of deliberations.
Similarly, the CAG Report 19 of the year 2017 on Defence Public Sector Undertakings had highlighted as to how the HAL had incurred losses owing to inadequate planning in procuring raw materials and holding idle inventory pertaining to a particular requirement of the IAF.
“HAL also incurred expenditure of Rs 107.05 crore ($15 million) on account of procurement of six additional engine kits in anticipation of order from MoD (Ministry of Defence) which remained infructuous. Though establishment of facilities for major servicing of airframe and engines was envisaged to be completed by March 2016 and March 2018 respectively, considering aircraft directly procured by MoD, HAL was yet to establish the facilities till date,” stated the report.
The HAL has also been pulled up in several quarters in the past, owing to delay in completion of the Light Combat Aircraft (LCA) project and the indigenous Kaveri jet engine project, which have been in the pipeline for the past several decades.
However, delay in execution of these projects are attributable to the design agencies, that is, the Aeronautical Development Agency for the LCA and the Gas Turbine Research Establishment of the Defence Research Development Organisation for the Kaveri. There have been continuous changes in design of these projects over the years leading to delay in their completion.
Against this backdrop, experts are of the view that the HAL be gradually divested with the government holding a minimal share in its ownership, so as to improve its operational efficiency, usher in a culture of corporate management and enable the company to raise its own resources from the market.
The case of Embraer, the Brazilian aerospace major, is cited by experts as a case in point as to how defence manufacturing units can be privatised without compromising national sovereignty. The issue that national sovereignty stands to be compromised with the disinvestment of HAL has also been raised by its employees in their letter to the prime minister.
Embraer, an acronym for Empresa Brasileira de Aeronáutica, was founded in Aug. 1969 by the then military government in Brazil under the leadership of General Artur da Costa e Silva as a 51 per cent state-owned firm.
Its privatisation process began in the 1990s over fears of bankruptcy. Though it was sold to private investors, the Government of Brazil retained its strategic interest over the company through an instrument called ‘Golden Shares’, which has been used to avoid its takeover by foreign capital.
Using this instrument of veto power, the Brazilian government successfully averted a takeover of Embraer by the United States aerospace major Boeing Co. in 2018. Instead, Brazil successfully maneuvered a joint venture agreement with Boeing Co. that was worth $3.8 billion. Today, Embraer is among the top three aerospace corporation in the world having risen from the threat of bankruptcy in the 1990s.
“The hold of the government on HAL has to be loosened in order to make the corporation globally competitive. It will enable hiring of the best brains in the country without any limitations like fixed government salaries or promotion by seniority only. It will unshackle HAL from needless bureaucratic controls besides ushering in greater autonomy,” Air Marshal Anil Chopra (Retired) said.