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Why we can't keep the dealer at arm's length
There are many versions to the many aspects of the ongoing stand-off between Army Chief General VK Singh and the government ever since he went all out on his date of birth. The narrative changes according to who you talk to.
However, there is one incident where narratives of most players seem to converge, especially that of the government and the Army Chief: on Gen Singh's claim that sometime in September 2010 he was offered a Rs 14 crore bribe by a former military officer for facilitating the purchase of Tatra vehicles for the Indian Army.
The only one disputing the narrative is Lieutenant General Tejinder Singh, the former chief of Defence Intelligence Agency who is accused of offering the bribe to the Army Chief right in the fortified office of the Chief of Army Staff in South Block. Tejinder Singh has gone to the Delhi High Court, slapping a defamation suit against VK Singh.
Defence minister AK Antony agreed with the Army Chief that the latter had indeed walked into his office and reported the matter. The defence minister was aghast, the Army Chief shocked, and both failed to initiate the stern action that was expected. So why didn't they act? Is it that they didn't want to kick up the muck on arms deals?
The answer may not be easy to come by, but what is clear is that while the allegations may have shocked the general public, corruption is not an unknown factor in military deals.
In fact, the level of corruption in the armed forces, especially in defence acquisitions is rising by the day. It is not just many men in uniform who are benefiting from the manipulations of arms dealers and defence firms, but many political figures and bureaucrats as well. It is such a well-oiled system that unless an oddball like the Army Chief speaks up, silence is the language in that world.
THE GLOBAL SCENARIO
Since the Kargil conflict of 1999, India has been steadily climbing up the list of the world's biggest arms buyers. The 1990s were truly the lost decade for military modernisation, with the Soviet Union's collapse blinding the Indian military, leaving it fumbling for new acquisitions. The Kargil conflict with Pakistan in 1999 jolted India into action, and triggered a series of purchases at regular intervals.
Between 2007 and 2011, India became the biggest importer of military wares in the world, overtaking other big spenders like China, South Korea, Saudi Arabia etc. According to the Stockholm International Peace Research Institute (SIPRI), India accounted for 10 per cent of global arms imports in 2007-11. The next four largest recipients of arms in the same period were South Korea with six per cent of imports, Pakistan with five per cent, China with five per cent and Singapore with four per cent.
China, which had topped the list in 2002-06, registered a remarkable turnaround by reducing its dependence on imports and developing its indigenous manufacturing base. Equally important, "Between 2002-2006 and 2007-11, Chinese arms export volumes increased by 95 per cent. China now ranks as the sixth largest supplier of arms in the world, narrowly trailing the United Kingdom, " SIPRI said.
India continues to buy 70 per cent of its military requirements from abroad today. Of the remaining, significant portion are systems with foreign components. Overall, India is heavily dependent on foreign defence firms for ensuring battle readiness of its armed forces. This remains a key reason why corruption is sky high in defence purchases.
The foreign defence firms engage leading arms agents to ensure that the acquisition processes goes in their favour. There are many well-established arms dealers who work with these firms.
Global tenders floated by the armed forces begin with the military headquarters drawing up the General Staff Qualitative Requirement (GSQR), and corruption begins from here. Arms manufacturers need to ensure that the GSQR fits their product and, if possible, nobody else's. After technical and commercial tenders are submitted, the field trials begin, where efforts are made through middlemen to influence the outcome. The analysis of the technical and financial tenders too can be manipulated given India's long and tedious procedures. The more complex the procedures, the easier they are to manipulate.
HOW DEALERS OPERATE
In many parts of the world there are tough anti-corruption measures. For example, in the US, the Foreign Corrupt Practices Act, a product of the post-Watergate clean up of American public life, is a stringent law that could punish an American citizen even if he were to offer bribe in a third country. Similarly tough are the OECD (Organisation for Economic Co-operation and Development) Anti-Corruption Convention and its guidelines, making it difficult for companies to directly bribe anyone.
The Indian defence ministry stipulates signing of an integrity pact for all contracts worth over Rs 100 crore, undertaking that the company signing the defence contract has not engaged any middlemen or paid bribes to anybody.
Despite such practices, the reality is that not one major defence deal in India goes through without the involvement of middlemen. They have professional setups, comprising retired military officers and civilian liaison officers, to carry out the entire operation. From efforts to manipulate the GSQRs to ensuring trials go in their favour, to bid document evaluation, at every stage these middlemen ensure that their clients' interests are protected.
If the market grapevine is to be believed, defence companies pay commissions starting from four per cent and up to as much as 15 per cent. The commission is paid in tranches, and could carry on for years. In some cases, Indian arms dealers are known to pick up stakes in defence companies instead of cash, because of the size of the commission. Sudhir Choudhrie, one of the leading arms agents of India, has significant stakes in some defence firms in Israel and probably in Russia.
The history of major arms scandals shows that it may not just be one individual who would be working to get a defence contract for a company. The Bofors scandal, which broke out in the late '80s, showed that several powerful people worked separately, and together, to ensure that the Swedish firm, Bofors, won the artillery gun contract. The total commission was around Rs 120 crore and was paid to them through various foreign banks.
In the purchase of HDW submarines from Germany for the Indian Navy, evidence in the late '80s showed that Crown Corporation, owned by former Navy Chief Admiral SM Nanda, may have been paid a commission. The CBI failed to prove a money trail in the case and the case was thrown out by the Delhi High Court. But evidence exists to show that the Nanda family had opened trusts in Liechtenstein in the late '80s and money from that was routed to London to purchase properties later.
CBI said in the purchase of Barak missiles from Israel that the commission was paid into the accounts of some Indian firms owned by Suresh Nanda by a German firm that was supplying engines to the Israeli firms that made the Barak missile.
The payments are mostly routed through tax havens, through paper companies, and a lot of effort is taken to wipe off the trail of money from arms companies to arms merchants.
Many of India's arms agents are NRIs, with bases in tax havens, and many of them also operate out of the UK, Gulf countries etc.
For India to crackdown on corruption in defence deals, a holistic effort is necessary. It would require a political consensus that may be difficult to come by, given the fact that these arms dealers have deep contacts in major political parties, and some of them may have financially gained from the dealers.
However, India needs to wake up to the dangers of letting arms agents manipulate defence purchases, given the fact that they are manipulating the national security requirements and projections. It is the large scale corruption in the sector that is partially responsible for ensuring that India does not have a robust military industrial complex that would generate credible levels of self-reliance in defence for India.
The complex could also throw up cutting-edge technological products and generate millions of jobs. When India creates such a robust complex, with leading players from the Indian private sector as participants, the levels of corruption should automatically come down. Not just that, it would also help India rework its concept of purchase. Today, the armed forces project for a specific weapon and call tenders. Instead, they should project required capabilities, and let private and government players take up the challenge of designing and producing it.
Government institutions such as the DRDO and defence PSUs need to be more cutting-edge and self-reliant. A mission mode approach needs to be adopted. Such a combination of government players and private sector, with a political commitment to ensure their aggressive growth, would ensure that India achieves necessary self-reliance and drastically reduces corruption. Until then this gravy train will keep running.
India was the biggest importer of arms in 2007-11, accounting for 10% of global arms imports during the period India's total defence budget Rs 1. 93 lakh crore ($41 billion) for 2012-13 Capital allocation is Rs 79, 579 crore Revenue expenditure is Rs 69, 199 crore In the decade after the Kargil conflict India spent $50 billion on defence purchases. India is projected to spend over $100 billion this decade
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