An IDC Analysis


New Delhi, 04 March 2005

A simple question that needs an answer is whether India’s MOD and Armed Forces may do clean defence business without legal Agents like their civilian counterparts do in India? The civilian firms’ agents are permitted by GOI to receive up to 3.5% of a deal in every contract, which would amount to Rs 100 crores in a deal like the Scorpene submarines acquisition, for example. Even when Mazagon Dock Ltd (MDL) delivers a new ship to the Navy, it is not uncommon for the yard to make a small gift to the ship, on completion of the contract. The profits in arms deals are massive though the road to success is difficult and may even be barren. But that is the gamble arms dealers with big pockets risk and HDW, Bofors, Tehelka and now maybe the Scorpene deal may confirm this. Yet in India it seldom gets proved in a court of law. The Supreme Court has however banned illegal sting exposes for the time being and that is unfortunate. Responsible media reporting should never be muzzled and USA has the First Amendment to guard it.

India is globalising and hence in the openness now engulfing the country the subject of defence deals, agents and defence consulting was high on the agenda in the recently concluded DEFEXPO. The same theme was alive and kicking for Indians at the well attended Asian Aerospace Show held in Singapore from 21st Feb. Today defence consulting before the Request For Proposals RFPs (Tenders) are issued is legal, heralded by CII which made it legal. CII’s website offers its services at handsome rates, which defence companies can afford, as India is one of the largest importer of defence wares in the world.

Indian aviation business was the flavour of the Singapore exhibition and Indians signed $7b worth of aviation deals whilst the IAF delegation led by the Air Chief were being greeted and wooed for the impending mouth watering $6b MRCA 126 fighters deal. We witnessed how an Indian mining company made its down payment for its second Bell helicopter, which have proved the most versatile and economical helicopters operating in India. 17 Bell helos were purchased in 2005–2006 by civilian firms. Bell after service sales is also known to be excellent. Many helicopters are now available on hire as witnessed by our leaders flying around during elections. As these helicopter sales were civilian purchases, agency commissions were paid legally. We reiterate no one buys a Maruti or a Ford car from the parent company. Purchasers have to go to the Agent who even offers a rebate. The Indian Navy and Army delegates too were being wooed for the large Helicopter deals held up due to inter-service disagreements. Indian defence dealers too were spotted at the show.

At Singapore delegates recalled the two excellent sessions held at DEFEXPO devoted to the newly issued voluminous Defence Procurement Procedure called DPP 2005. The Defence Procurement Board honchos were in the chair and admitted, in the presence of Indian and foreign arms delegates, that they had a long way to go before all the new rules were implemented with clarity, especially the complicated one on 30% offsets. The Defence Minister Pranab Mukherjee confirmed there are 30% offsets inked into the $3.5b Scorpene deal and we will watch and track how the French invest $1.1b back into the Indian Defence Industry, as that is the only route available at present to ARMARIS, THALES and MBDA, the main beneficiaries.

The French had offered to swiftly build two of the six Scorpene boats in France, whilst the Indian technicians prepared MDL and the Indian Navy for building the next four. However for reasons yet to emerge that option was not exercised. As of now all six will be built at MDL. Larsen and Tubro (L&T) have courageously offered to form a JV with MDL and build three, as there is time –– the steel to be imported will arrive only next year. The first payment has however been made. Time is money in today’s world but in this case it is paramount, as Indian yards have not delivered any large ship without a 20–100% overrun in time, though their record is improving. Even the three Talwar class Krivacks supplied by Russia are cheaper and were faster in build than Indian equivalents, and three more are on offer and the MOD must clinch the deal. The ships are world class.

The private ABG Shipyard has promised to deliver the first Pollution Control Ship this October to the Coast Guard ahead of time. It is on these grounds that we advocate the L&T offer and the Navy knows the track record of L&T is superior to that of MDL. It is confidence in L&T which has made the Navy put all its missile eggs in the BrahMos basket and President APJ Abdul Kalam recommended the Navy put the BrahMos in the Amur submarines offered by L&T some day. The model was on show in Singapore at the Asian Aerospace and BrahMos CEO Dr Sivathanu Pillai and his team, including the Russian joint head were swamped with visitors.

The Tehelka tapes are now old hat but thanks to investigative journalism the CBI took a civilian Jain -- a money collector for a political party into custody, though Jaya Jaitley and others seem to have been let off the hook. We are sure nothing will come of it, but at least years after indulging in illegal money taking seen by Indians and foreigners on TV to push through a supposed defence deal, the first civilian is being questioned by a law enforcement agency and not a committee.

The Indian Army took the courageous step to court martial the officers who indulged in petty money taking in Tehelka and still wonders why the Navy and the Air Force let off the four officers in what has come to be known as the Navy’s “War Room Leak” case. Article 311 of the Constitution by which an Armed Forces Officer can be dismissed by the President without pension and with no questions asked, is a British legacy meant to be used rarely and explained in a book by Brig R P Singh and Cmde Ranjit B Rai titled “Admiral Vishnu Bhagwat Sacked Or Sunk”. The authors pleaded the procedure for the use of that draconian article be spelt out as this time it was used freely. In the Vishnu Bhagwat case it became a ‘fait accompli’ but the Government fell and did not learn a lesson. In the war room case too media appears to have carried out investigations and may have received intelligence and insider inputs. Outlook has named a flamboyant NRI (the normal route commonly known to all defence dealers for payments) Abhishek Verma, who is supposed to have paid for naval information and has been promised a hefty commission, but the veracity seems doubtful if the French company Thales and their Ambassador are to be believed.

We have heard the barb that Ambassadors are paid to lie but that is in a lighter vein. Yet the unnecessary slur and slant and connection of the present very capable Vir Chakra awardee and Chief of Naval Staff’s name has been sullied and bandied without an iota of proof by the same media. This seems to be the most insensitive step taken by a renowned, but known to be a sensationalist Editor and a young peppy journalist joining together leaks, with the use of ink. Emails and shreds from here and there to make their story.

In the case of defence officials media should avoid sensationalism in the case of senior officials in the interest of morale of the Armed Forces and stick to the substantive issue of leaks and commissions. In that vein we ask who will “Defend the Defender” in this case the CNS, the head of our guardians of the seas? Nobody seems to be answering that. It is a pity service officers even in high office cannot issue statements or defend themselves in public. We admire the courage of the CNS who had offered to resign and informed the Defence Minister of his wife’s connection as a relation. He did this to avoid harm to the Navy’s image and it was in the highest traditions of the motto of the NDA “Service Before Self”, that our young Army officers displayed on the heights of Kargil, but his action has been misinterpreted and taken advantage of.

In all defence deals world over money is spent to consummate the deal and Agents are employed just as they are for civilian deals. In India Rajiv Gandhi had banned them maybe to facilitate the Bofors deal it seems, and the Congress and he suffered the Bofors kickback. Four years ago the policy was reversed but the procedure outlined for appointing Agents was so draconian that not a single Defence Agent has been appointed so far and it is business as usual? The rules for appointing Agents must be made similar to those for civilian companies.Foreign firms do that on professional basis, so that reputations are not tarnished, and unfortunate officers like those who got trapped in Tehelka and the war room leak, do not suffer because of faulty Government policies. One officer in the war room leak strongly feels he gave out commercial information to help the Navy get the right equipment -- as he was in no position to influence a deal, but if Agents were legalised he would have passed the same information legally.

We have had personal experience of a major shipping company carrying thousands of tons of project cargoes from USA including power plants and refineries like Panipat and even Bharat Forge to India and it was Agents who day in and day out facilitated smooth deliveries, payments and readily answered queries for Bills Of Ladings to get cleared by our complicated Customs department. In the case of the cargo carried for the MOD and DRDO in volumes, it was the Embarkation Headquarters who play a quasi civilian role to take delivery of cargoes, and do an excellent job of it as funds are put at their disposal. In a case to make the point, no commission was paid for the LM 2500 turbines brought for the Navy from GE’s Agents in USA, Stewart and Stevenson, but it was paid to the Mumbai agent who handled similar cargo for three Industrial houses.

The lesson is that Defence Agents are a must, which may not cleanse the system, but will plug the loop holes and those who are in the trade can hold their head high and we need not whisper their names as we do now.

Back to Top

Disclaimer   Copyright