Defence ministry owes contractors over Rs 1,600 crore

BENGALURU: While Hindustan Aeronautics Ltd not being paid Rs 15,700 crore by the ministry of defence led to a heated political debate, it has now come to light the problem is not limited to the defence PSU. The MoD has not been paying defence contractors their dues, resulting in more than 7,000 contractors — mostly small and medium businesses — being hit. Pending bills worth Rs 1,600 crore across the country have hurt contractors. The figure could touch Rs 2,000 crore by March. Contractors in the southern region need to get more than Rs 450 crore. Officials from the Military Engineer Services have, in letters, indicated they’re grappling with funds shortage and suggested contracts for which “there is no money to pay” be “suspended”. “Contractors have almost stopped or slowed down work, have lost their market value as they’re unable to pay suppliers,” said Azizullah Khan, senior vice-president, MES Builders’ Association of India, New Delhi, the only association of defence contractors authorised by MoD.

According to contractors, the armed forces — mainly Indian Air Force and the Army — owed them Rs 1,600 crore as of March 2018, pending from the previous year. Of this, about Rs 1,000 crore was paid.

“Then payments stopped. By September, bills of Rs 1,600 crore were unpaid. We, then, planned a nationwide strike. The defence minister met us before Diwali, and promised us payments both before and after the festival and requested us not to strike,” Khan said. Soon, Rs 250 crore was released by the MoD, leaving about Rs 1,400 crore in pending bills, including a few more that were added. “Most of the Rs 250 crore went to big contractors like L&T, and most contractors did not get their dues. The minister’s promise of another installment being released has not materialised. We’re in trouble,” Khan added.


TOI queries to MoD didn’t elicit response. Tilak Narayanaswamy, secretary of the Bengaluru chapter of the association, said: “The fact that MoD has not been able to pay this much is alarming, ‘‘ Narayanaswamy said.

A double whammy for defence contractors
Even Rs 2 crore or Rs 3 crore pending money means trouble for contractors. In 30-plus years I’ve worked with the military, I’ve never experienced such a situation," he said.

A letter to all MES formations in the country from the Engineer-in-Chief of the service in October reads: “For running works where payments are held up due to funds crunch and the contractor is not in position to progress work, the work shall be put under suspension…”

A copy of the letter is with TOI and contractors said every meeting with officials has elicited the same response. Contractors said this is a double whammy: They’re not paid for projects completed, and new orders are likely to be suspended. “They’re not even justifying nonpayment,” Tilak said.