Tuesday, 11 September 2007

The Arjun tank: building a defence industrial base

by Ajai Shukla
Business Standard: 11th Sept 2007

The sprawling premises of the Heavy Vehicles Factory (HVF) in Avadi, near Chennai are the birthplace of the tanks that form the cutting edge of the Indian Army. The two major tank production lines here present contrasting pictures.

On the one hand is the T-90 production line, evidently the line of the future. Presently reassembling knocked down T-90 tanks that are shipped from Russia, this is where the bulk of India’s 3500-tank fleet could be manufactured once the domestic production kicks into gear. 
The other production line is that of the Arjun. Newly set up in a giant shed at one end of the HVF, this is the line with limited prospects. After fulfilling the army’s token order for 124 Arjuns, which at the target rate of 50 tanks a year will be met by 2010, this production line will be looking for orders.

The makers of the Arjun tank, the Central Vehicles R&D Establishment (CVRDE), located a stone’s throw away from the HVF, believes that the Ministry of Defence’s (MoD’s) decision to cancel comparative trials this summer is a hammer blow to the prospects of getting a larger order for the Arjun. After three decades of failing to meet the army’s expectations, the Arjun would have needed to clearly outclass the T-72s and the T-90s in head-to-head trials to wrest more orders from a sceptical army.

The army’s strongest argument in favour of the T-90 is that from the purely economic viewpoint, the T-90, at an affordable Rs 12 crores apiece, seems a cheaper option than the Arjun, which carries a Rs 18 crore price tag. But the CVRDE disputes this point. If larger orders are placed for the Arjun, says Project Director, R Jayakumar, the economy of scale will bring down the cost of the Arjun to around that of the T-90.

Initial costs, say officers involved in the project, were high. HVF Avadi has machinery worth crores of rupees lying rusting; that was used to produce even nuts and bolts for the Arjun, when local industry was producing nothing. Gradually, over years, a network of local suppliers has been created, an industrial base that has brought down production costs, but is itself vulnerable to the stoppage of production.

Amphenol Ltd produces radio harnesses for the Arjun. Mr Guruprasad Bhat of Amphenol says that in anticipation of increased Arjun production, the company expanded its manpower and production and testing facilities at a cost of Rs 8 crores. Now Amphenol must recover those costs. And the larger the number of tanks that are produced, the lighter it can load its products. Mr Bhat explains that, “we’re proud to be involved in producing an Indian tank, but we’d also like to see good profits.”

The Secretary of Defence Production, Mr KP Singh, has told NDTV that the MoD has “kept the option of producing another 124 of the better version of the Arjun tank.” But that is not yet a firm order and, to benefit from the economy of scale, the overall size of the order must be clear from the start, rather than reached in a piece-meal manner.

This is a complaint that several manufacturers voice about the MoD. In the ongoing procurement of Light Reconnaissance Vehicles, the size of the order could be a whopping 8000 vehicles. The MoD has asked bidders to submit tenders for a firm order of barely 100 vehicles. Bidders point out that if 8000 vehicles are bought in small tranches, they will cost far more than a single large order.

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