Almost all defence deals post Kargil have hit a wall

A decade of high spending on defence after Kargil is unravelling a mess of delays, misappropriation and technical inadequacies, with various audits and external probes raising serious questions on the possibility of omissions and commissions in most contracts.

Despite evidence of corruption, governments have been selective in taking action.
In the past 10 years, India has signed defence contracts to the tune of over $30 billion with companies from Russia, Europe, Israel and the US. Except for a few, all deliveries are behind schedule and pockmarked by questionable financial decisions, specifics of which are guarded by a fiercely secretive ministry of defence (MoD).

As CAG (comptroller and auditor general) and media bring major contracts under scrutiny, the government is citing secrecy to deny information. The latest is the MoD’s effort to stall a CAG audit of the Rs10,000-crore deal for MRSAM (medium range surface to air missile) signed on the eve of elections. DNA had exposed several loopholes in the deal.

The MoD’s insistence on secrecy is such that most government decisions on defence purchases reach the media through foreign companies and arms agents.

The very first major contract post-Kargil, the Barak anti-missile system for ships, is dragging on even under CBI scrutiny. The investigation seems to be headed nowhere, though there is enough proof to establish the flow of money from Israeli firms to defence agents.

In the Scorpene submarine deal   signed in 2005 for over Rs18,000 crore, the CAG said “contractual provisions” gave the vendor an undue financial advantage of over Rs349 crore. Now, several MoD claims are turning out to be factually incorrect. Earlier, when the media had raised questions, the MoD had said its negotiations helped gain over Rs313 crore. But CAG points out that delay in contracts led to a Rs2,838-crore price rise.

In the past week, CAG raised serious questions on three major contracts in the past 10 years — two of them signed in AB Vajpayee’s reign. The Manmohan Singh government seems committed to denying CAG key files on the contracts.

It took 22 years to finalise purchase of advance jet trainers from the UK’s BAE Systems. The Rs8,120-crore Hawk purchase in March 2004 was based on air staff requirements (ASR) in 1987. When the air force issued tenders in 1999, ASRs were not revised. Due to wrong procedures and lack of accountability, the contract faces delay. The government is trying to wriggle out of the mess. Recently, the MoD issued a new request for information (RFI) for the next batch of trainers, hinting that it won’t place a repeat order with BAE, though a strict penalty clause and other punishments built into the contract would have forced the global military giant to behave. Though the government wants to pin the blame on BAE, the CAG audit and sources indicate severe flaws in the contract, including the fact that aircraft with a fatigue life of just 6,000 hours was accepted when aircraft with over 10,000 hours of fatigue life were available.

In the Admiral Gorshkov deal, India made a $500-million advance to Russia without imposing contractual obligations on it.

There are many other serious lacunae. The ship won’t have a close-in weapon system, vital for detecting and destroying incoming anti-ship missiles and aircraft. Even Jet Blast Deflectors, essential for protecting aircraft and men behind the fighter taking off, has not been slotted. Meaning, the time lapse between two fighter take-offs would be more.

The delivery of a nuclear submarine to be leased from Russia is much behind schedule. Here, too, India lacks leverage.

A senior official in a private sector firm said, “The DPP (defence procurement procedure) is so complicated, it seems to have been created for manipulation.” An MoD source said when Sudipto Ghosh was the Ordnance Factory Board chairman, companies such as Israel Military Industries (IMI) manipulated contracts worth Rs1,000 crore.

Another industry source said delays happen in “buy and make” contracts, meaning when part of the contract involves assembling or manufacture the item in India by a PSU. 

What is most discouraging is the government’s reluctance to act against corruption, responsible for most of the problems plaguing contracts.

Recently, the MoD took an aggressive stand against seven defence firms, including Israel’s IMI and Singapore Technologies by putting on hold all deals with them. Sources say the MoD has now sought the opinion of the Central Vigilance Commission and law ministry, a usual practice to do something that is not morally right, with “legal blessings.”