Okay, so you are seriously suggesting that the greatest pen-pushers and penny-pinchers in the country have created a production line that defies logic?
Let me give you an example with HAL. When LCA was ordered, it was only for 40 jets in two separate contracts. For a 40-jet order, the HAL did not create a 40/year production line, but an 8/year production line. So the entire production cycle of these 40 jets, including delays would be 8-9 years. During this time, the production line would deliver all these jets with a moderately high efficiency, as they have been doing to date. Now, with doubling of orders to 83 jets and doubling the size of the production line, the HAL will now deliver 16 jets a year, with a pretty comfortable 8-9 year production cycle. Do you really think the HAL is being inefficient here?
OFB doesn't have a magically large production line for the Arjun, it's just 25-30 tanks a year. At this rate, the production cycle for 120 tanks would be similar to HAL's LCA, ie, a minimum of 8 years to deliver all the tanks. So the small production line is working at a pretty high efficiency. They did not set up some 200/year line with unrealistic expectations. All expansions production lines are based on the size of the order placed. And OFB's Arjun line is pretty efficient for its size, no different from HAL's 8/year LCA line.
The only economies of scale expected is with large orders so technologies that are currently being imported can be license produced in India, hence it can reduce some costs. That's about it. The Arjun has practically achieved economies of scale with the delivery of the first 124 tanks. The only cost savings expected is from indigenisation of imports. And long term cost reduction is irrelevant to the armed forces, it will only reflect in the balance sheet of companies and not in the contract itself. The 8300+ Cr the IA is paying for the 118 Mk1As is pretty much the best price they can get, it will only get higher from here onwards.