Tejas LCA at Aero India 2013
HAL has reportedly priced the first 20 Tejas LCA, now under production in Bengaluru, at Rs 162 crore each. ($25 million at current exchange rate.) The price tag looks very impressive when compared with the reported price tags for the upgrades of IAF Mirage 2000 ($45 million ea.) and MiG-29 (Rs 87 crore ea.) per aircraft.
One reason why the Tejas is priced so low is because HAL is not including development costs in the price tag. HAL didn't develop the aircraft, ADA did and the Indian government footed the development costs. On the contrary, Mirage 2000 and MiG-29 manufacturers are upgrading the aircraft on India's request and exclusively for India; the unit price of the upgrades reflects a hefty development cost.
Considering India's limited industrial base and consequent need to import many of the critical components featured on a fighter like the Tejas, lower production cost for Indian developed weapon systems is a myth; it defies logic.
At comparable skill levels, the cost of an employee in India isn't significantly lower than in developed western countries. If you factor in the inefficiency and the perks associated with employees working in the public sector, employee cost is likely at par.
Also, foreign help in developing a weapon system like the Tejas (ADA sought foreign assistance for overcoming slow speed handling issues, obtaining IOC and strengthening the undercarriage for the Naval variant.) doesn't come cheap even after the pound of flesh implicit in such assistance.