Sunday, March 03, 2013

Corruption, more than anything else, is the hurdle in India's defence buildup

One of the unintended consequences of the VVIP helicopter deal revelations is that defence acquisitions, already clogged up because of lengthy procedures and processes, are likely to get slowed down further.
What the episode shows is the insidious role of shadowy players like Christian Michel and Abhishek Verma in virtually every defence purchase that takes place.
The government of India has tried and failed to root them out, and all we have to show for it is an ever-lengthening list of defence companies who have been banned from doing business in India, an action tantamount to cutting our nose to spite the face.

And the situation only goes from bad to worse. Tehelka's Operation Westend and saw the conviction of Major General P S K Choudhry, Brigadier Iqbal Singh and Colonel Anil Sehgal for taking bribes from journalists posing as arms agents.
Now the VVIP helicopter deal revelations only confirm that corruption has seeped into the very innards of the system.
Among the various nuggets of information in the documents relating to the AgustaWestland deal, is a memo about two Army officers who were in charge of evaluating the Light Surveillance Helicopter competitors.
A deal for 197 such machines has now been suspended for unstated reasons, but AgustaWestland was a competitor at one time.
It details how a Brigadier Saini, who had become the leader of the test team, established contact with them.
"He made contact and offered his services in order to help eliminate the competition".
The memo says that Saini's predecessor, a Colonel Sidhu, had tilted the tests to favour the French helicopter, and now they had an offer from Saini to assist the Italian AW119, in exchange for 0.5 per cent or $ 5 million.
The memo notes, Saini was "excited about this deal" considering that this was "his last major assignment before retirement."

Ever since the Bofors scandal, the political system has chased the red herring of agents or middlemen in the defence business.
The ruling class cynically pandered to the public's distaste for middlemen who seemingly make money without doing anything substantial. But in reality, the middleman or agent actually has a functional role.
Ask anyone who has sold, rented or purchased a house. Acting without a broker would be risky indeed.
They not only bring a buyer and seller together, but they provide knowledge of the market as well as assistance in closing deals.
Indeed, the broker is very much a part of capitalist enterprise. The real villains are not these middlemen, but shadowy fixers who establish a line to the government of the day, usually leading politicians, and fix a deal.
This is not something that can be regulated by anyone. This is where the Guido Haschke and Michels come in, and they are not about servicing a deal in the conventionalsense, but bagging it through means fair or foul. The VVIP helicopter deal documents have only provided a look at the tip of the iceberg. More instructive is the infamous Bofors deal.
The initial CBI charges were against Bofors agent Win Chadha, Italian businessman Ottavio Quattrocchi, former defence secretary S K Bhatnagar, Bofors chief Martin Ardbo and the Hindujas. While the Hindujas were acquitted, Bhatnagar, Chadha, and Ardbo passed away.
Now only Quattrocchi remains, and his involvement is the one that has been the most difficult to explain, since he had nothing to do with Bofors and had no known involvement in the defence business.
But he was a self-acknowledged friend of the Gandhi family. So what does India do to get out of this maze?
There are short-term fixes such as going in for foreign military sales (FMS) kind of arrangements that we have with the US, where a US government agency deals with the procurement, logistics and delivery of equipment.
But this is a feature of the American system and even the Russians, whose defence industry is owned by the state, now use private agents and brokers to sell their wares around the world.
Perhaps the more important long range step is to encourage domestic R&D and production. But this is easier said than done as the experience of the DRDO and the defence public sector units (DPSU) indicate.
Over the years the infirmities of the DPSUs have become more than apparent. They have found it convenient to remain in the stage of licence manufacture which comes to them by virtue of being government owned.
Indeed, so convenient is this situation that they have become lobbyists for foreign suppliers, as was evidenced by the role of the Bharat Earth Movers Ltd in the Tatra trucks case.
What India needs is a wide opening up of the defence sector to the private players. There is no reason why the HAL or anyone else should automatically be designated as the licence holder to produce a foreign weapons system by virtue of being a government company.
Simultaneously, the government needs to break the DRDO monopoly in defence R&D. Given a long-term relationship, there is no reason why the big private players in the defence business-Tatas, L&T, Godrej, Mahindra, Reliance-will not develop their R&D as well.
Importantly, such players are already doing business in India and coping with the demands of the politicians and have learnt how to handle them.
The problem, however, is that the political or governing class today sits at the head of a powerful lobby which includes senior armed forces officers, bureaucrats in the ministry of defence, and the DPSU managers, who do not want to change the way things are.
They hold the levers of power that decide just which system is to be acquired and when. There is so much money being made and to be made from the massive defence imports that this lobby is difficult to defeat. In the meantime, the country's defence system is left vulnerable and its exchequer bled of money it cannot afford to lose.
Mail Today Feb 17, 2013

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