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Corporate Feb 15, 2013

From Bofors to Agusta: How can defence deals be kept clean?

By Venky Vembu

If there's one thing in common with procurements by the Indian armed forces - from Bofors guns down to AgustaWestland helicopters - it is that they have all been characterised by allegations of corruption in high places, which generated much heat and dust in the political realm, but yielded little else.

Yet, over the decades, despite all the outrage, nothing has been done to put in place mechanisms that can make such procurements transparent - and try and rid the process corruption-free to the extent possible. Although the matter comes up for mention in thundering newspaper editorials whenever reports of corruption in procurements come up - the latest such editorial appears in today's Business Standard - the vested interests in the system that profit from opacity have ensured that no effective change has been brought about.

In defence procurement, typically, a balance has to be struck between urgency of acquisitions, which would determine the speed of acquisitions, and the transparency that surrounds the process. A completely transparent system has many merits, but not when the armed forces' requirements are urgent. Defence Minister AK Antony's reflex action in "blacklisting" defence manufacturers has the merit of being seen to be moral, but it has effectively only created bottlenecks in the procurement process without ending the problem of corruption, which such actions were intended to address.

Last year, for instance, the then Army chief, Gen VK Singh, raised the red flag on the perilous state of India's defence preparedness owing to delays in acquisitions of arms and ammunition. It's a fair bet that things haven't improved dramatically on that front, despite becalming assurance from armed forces chiefs.

AP

From Bofors to the helicopter deal what has changed? AP

Critics tend to blame the complexity of the defence procurement procedure (DPP) protocol for the opacity surrounding defence procurements, and the scope for corruption. The document (here), which lays down the minutiae of procurement procedures, has been revised eight times in the past few years. The constantly shifting goalpost has meant that companies that wish to sell to India need a platoon of subject matter experts and lawyers to make sense of the fine print - and perhaps even the services of lobbyists and middlemen who know the terrain and can grease the tracks.

Lack of transparency and accountability are the most frequently cited problems to account for the problems in arms procurement. And yet, despite the many iterations that the DPP has undergone, it has failed to remedy this.

In any case, the DPP applies only to procurement by the armed forces; ordnance factories, the DRDO and public sector defence units march to the beat of a different drum. And, in fact, arms deals that are struck on the fast track or under the umbrella of the inter-government agreements manage to circumvent the provisions of the DPP - and the tendering process.

Other strategic analysts have argued, controversially, for lifting the ban on middlemen in defence deals - and get them to work under a transparent regulatory framework. "It is hard to see how we can continue to justify the failed policy on middlemen," this blogger claims. "Unless you are blind to reality, blinkered by sanctimoniousness or bound by hypocrisy, it should be clear that the consequences of the anti-middlemen mindset are eating into the moral fabric of our defence services."

That's persuasively argued, of course, but it fails to convince. The point has been made elsewhere that it is not the illegal status of the 'middlemen' that greases the tracks for corrupt deals. For instance, a sales representative selling medical equipment - a perfectly legitimate authority doing a perfectly legal function - is part of a business model where, in order to advance sales, he provides bribes to the procurer (which go into padded invoices). Likewise, legitimising the middleman isn't going to end corruption in arms procurement.

For more than a decade now, politicians frequently invoke the emotional rhetoric about the compelling need for indigenisation of arms manufacture. Yet, progress on that front has at best been glacial. Dependence on foreign suppliers remains high to this date, driving India to the top of the charts as an arms importer. And given the fact that vested interests that profit as shadowy middlemen in the procurement process have gamed the system, that's unlikely to change in a hurry.

by Venky Vembu

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