VVIP chopper scam: Defence procurement policy must be realistic about role of middlemen

AgustaWestland must not go the Bofors way is the common political refrain. To Bofors, you could add HDW, the scandal over the purchase of German submarines just four years after Bofors; Sukhoi 30 jets from Russia, Israeli Barak missiles, and so on. The scams have adversely affected the process of modernisation of the armed forces which, due to their neglect, faced the 1962 Himalayan debacle which was a scandal of strategic impoverishment also. Remember 1999: so underequipped was the Army in Kargil that Army chief, Gen VP Malik, said: “We will fight with what we have.” 

Compared to China, which adopted free market ideas, India’s defence industrial base is still stuck in Nehruvian paradigm of government-led development and is 20 years behind China in defence design and production. It is the bounden duty of every government and Parliament to provide cost-effective high-quality state-of-the-art weapons and equipment to the fighting forces.

Yet, year after year, the parliamentary standing committee on defence — and this fiscal is no exception — reports that defence spending is inadequate and insufficient to fulfil the military’s basic needs, let alone its modernisation. Defence secretary Mohan Kumar contradicted his defence minister Manohar Parrikar who has claimed it was adequate by saying it was not as per requirement of the services. In fact, this year’s allotment at 1.7 per cent of GDP was the lowest in decades. It should be three per cent of GDP to catch up with China.
In Parliament last Friday, Parrikar tabled the standard boring reply to a written question on modernisation without indicating shortfalls and deficiencies. In 2012, then Army chief and now a minister, Gen VK Singh, had described the shortfalls as “critical hollowness” in operational preparedness. As India is still importing nearly 70 per cent of its weapons platforms, procurement procedures are corroded with layered kickbacks resulting on detection in banning/blacklisting of vendors to the detriment of modernisation. In August 2014, when he was also defence minister, finance minister Arun Jaitley, while speaking about blacklisting, said that government has to strike a balance between two competing public interests: probity and defence preparedness. The latest Defence Procurement Procedure 2016 promulgated on March 28 has the chapter on Strategic Partners missing where the role of middlemen/agents and blacklisting was to be addressed. This remains a crucial gap and must be filled up urgently.

A study of the previous scam-ridden arm deals is most instructive. The decision-making and choice of weapon platforms was influenced by top politicians aided by bureaucrats. Take the purchase of 40 Sukhoi aircraft for Rs 6,330 crore from Russia where the defence minister claimed there were no kickbacks and middlemen because no one was investigated. Then Air Chief Marshal SK Sareen wanted to buy more Mirage 2000-5 but was told there was no money for them. But funds were available for Sukhoi 30 — for which there was no Air Staff Requirement — that politicians wanted. From 40 aircraft, the figure for Su30 today has risen to 300 aircraft and still more might be added. Every government, from Congress to Janata Dal to NDA is known to have benefited without any money trail being detected. The HDW principals admitted to paying seven per cent commission to middlemen. After investigating the case for 15 years, which included raiding the premises of Navy chief Admiral SM Nanda, no evidence was found. Similarly, the seven-year inquiry over Israeli Barack Missile system in which another Navy Chief, Admiral Sushil Kumar figured was closed due to absence of evidence. Now centre-stage is Air Chief Marshal SP Tyagi along with his cousins and a paper trail of other political and bureaucratic names. Strangely, only service personnel are investigated and politicians who are principal beneficiaries get away. Military contracts get deeply politicised with political parties claiming no wrong-doing. In the 10 to 15 year period for fruition of a contract, governments change and skeletons are taken out for political vendetta which undermines modernisation and defence preparedness.

The role of middlemen is critical in manipulating or influencing decision-makers at various levels – the military up to the stage of equipment evaluation and key politicians and bureaucrats during the crucial contract price negotiations and final selection stages. In the run up to the selection of the multirole Rafale fighter, President Obama had written to Prime Minister Manmohan Singh canvassing the case of US F16 and F18 fighters. Last year, Prime Minister Modi changed the preliminary contract of Rafale fighters from 126 to 36 aircraft as the contract for 126 aircraft got stuck.

When a decade ago, the British government was faced with a full-blown scam over the sale of fighter jets to Saudi Arabia, the dilemma was in fixing balance between probity and interests of British Aerospace. A defence journalist Bernard Gray of Financial Times who is currently Chief of Material in MoD headed a committee to resolve competing public interests. He recommended imposing punitive monetary penalties instead of blacklisting defence companies. This is the direction in which Parrikar has tilted as subsidiaries of Finmeccanicca are supplying whole range of guns, torpedoes and radars for warships and submarines. Parrikar’s predecessor AK Antony was a wholesale blacklister.

Answers will have to be found on regulating middlemen: they cannot be eliminated. Legalising them with code of conduct was considered once but not implemented. The local agent is the single point of contact with a multinational. Ways and means also have to be found for plugging leaks of data from Service Headquarters and MoD. Till a less squeaky Defence Procurement Procedure is devised, the government will have to rely on a mix of government to government transactions – like Foreign Military Sales with US – and an improved existing tendering system. The G-to-G procurement inevitably limits choice of vendors, reduces offsets and obviates transfer of technology and indigenous production. Bofors and HDW were lost opportunities for capitalising effective weapons platforms and absorbing advanced defence technologies. Finally, till the CBI and ED are seriously empowered and completely independent the bribe takers will never be caught because detecting money trails has become monumentally difficult. In the meantime, defence modernisation and preparedness of the armed forces will continue to suffer.

The author is founder-member of the Defence Planning Staff, currently the Integrated Defence Staff.