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| The dilemma over defence agents | | |
Rahul Bedi
There may be a ban on middlemen in defence deals but are they a necessary evil?
WITHIN HOURS of the raids by the Central Bureau of Investigation last week in connection with the allegedly improper import of Israeli Barak-I area air defence missile systems, scores of arms dealers across the country galvanised themselves, frantically emptying filing cabinets and making a bonfire of their contents.
They functioned with well practiced ease having replicated this exercise at intermittent intervals. Within hours they had successfully cleared their workplaces of even remotely incriminating documents and piles of glossy weapon brochures.
While the cleanup was in progress, they also made frantic calls — many of which went unanswered or, at best, were furtively dismissed — to their benefactors at the respective Service headquarters and the Ministry of Defence (MoD) to inquire whether further raids were anticipated.
With 48 military contracts inked by the previous administration under investigation, they were anxious to know if their names featured on the hit list. Some were slyly told to call back next month, as by then the crisis would have blown over and it would be back to business as usual.
The anticipated brush-off was received with equanimity as all arms agents remain secure in the certainty that middlemen are essential to most, if not all, Indian military purchases, irrespective of the CBI and its investigations that rarely, if at all, have reaped dividends.
The 1987 Bofors kickbacks case has still not been concluded with at least two of the accused now dead.
Military officials privately admit there are few defence imports in which officially banned middleman are not involved to "sweeten the pill" and ease the product into the country through the Byzantine corridors of India's civilian and military bureaucracy.
Secretive procedures
"India's highly bureaucratic and secretive procedures for procuring defence hardware, which often take years before contracts are finalised, adds to the corruption," an MoD official said. The innumerable links in the arduous selection process have to be "oiled" even before price negotiations can begin, he added.
Others involved in procurement admit the ban on agents imposed a needless " hypocrisy" upon them. They frequently, albeit surreptitiously, meet them to exchange information, discuss requirements and product pricing, and, above all, to liaise for trials.
"The widely accepted practice of using agents becomes even stranger when all principal vendors are made to declare that no middleman was employed before finalising contracts," a military officer said.
Soon after assuming office, the Congress-led coalition introduced the `integrity clause' that is now mandatory for all Indian military contracts to obviate allegations of corruption and to ensure `unprejudiced' dealings.
This clause makes it incumbent upon the supplier to "unequivocally" confirm that no individual or firm was employed to facilitate the deal. It states that the contract would be terminated and the money refunded if, at any stage, it were established that this declaration was incorrect.
The dilemma over defence agents has haunted successive administrations, particularly after the Bofors scandal, and each one has been unable to deal with it or neutralise it by rendering the system more transparent.
Fernandes' order
After assuming office in 1999, George Fernandes as Defence Minister reinforced the ban on agents and ordered an inquiry into all military purchases, including spares, since 1985 worth over Rs.70 crore.
The Central Vigilance Commission (CVC), the CBI, and the Comptroller and Auditor General were tasked with probing the alleged involvement of middlemen and recommending efficient guidelines for acquiring military goods.
The CVC's subsequent recommendations to legalise defence agents by registering them in order to initiate transparency and efficiency in the laborious and graft-ridden military procurement procedures, however, elicited no response.
Scores of defence agents, operating "between the lines" with official connivance, remain distrustful of the MoD. Consequently, they remain unwilling to register themselves with the MoD in accordance with the CVC-MoD "regulatory mechanism" to monitor their functioning.
The ambiguous and contradictory guidelines for registering defence agents issued in November 2000 require them to list their contractual, banking and financial details with the MoD.
"For years defence agents have operated in relative anonymity. But the moment they declare themselves they will become targets for corrupt politicians and officials demanding money to push their products," a New Delhi representative of several East European and Israeli arms companies said.
He declared that the MoD, as per its guidelines would doubtlessly `police' commissions paid by the principals to their Indian representatives, rendering them helpless hostages of political feuds and vendettas whenever governments changed.
Besides enhancing official interference this practice, he added, would encourage agents to accept additional moneys overseas that would remain undeclared. This, in turn, would defeat the official aim of preventing "leakage of foreign exchange and tax evasion on agency commission."
Sadly, the Services too have not remained above corruption, lament retired officers. They said that before the Bofors scandal few military officers were bent, grateful for the odd Scotch whisky bottle, a carton of cigarettes or for the more discerning, an expensive fountain pen or cigars.
But once the Bofors scandal unravelled, highlighting the percentages allegedly paid out by the Swedish armament makers, astute MoD officers and deprived military men jumped on to the gravy train. They began demanding their fraction of the overall deal for `processing' the files that landed on their desks.
The questionable trials by the army of the four competing 155 mm howitzers from France, Austria, Sweden, and the U.K. in the early 1980s — reports of which have still not been made available to investigators inquiring into the Bofors issue — also brought home to the solider the vital role he played in the procurement process.
Arms dealers admit their business is nothing but a public relations game, in which catering to the greed of relevant officials, especially their wives, ensures success.
On their frequent visits aboard, defence agents are swamped with shopping lists from military and MoD officers for things as diverse as golf shoes, crystal ware, jewellery, and artistic baubles.
One defence agent confessed that at times the greed was embarrassing and shameless. One MoD official, he said, had even demanded new tyres for the car he had been given as a `sweetener' to facilitate one deal, over a year after it was clinched.
Despite the fiat by Prime Minister Rajiv Gandhi banning defence agents, a little known or even publicised reality is that the Indian Supply Missions attached to the embassies in Tokyo and Washington and the High Commission in London — primarily conduits to acquire military equipment especially for the Defence Research and Development Organisation — continued to make purchases through officially acknowledged agents based in India.
The only difference was that the principal was required to identify the agent who was then legally paid commission in rupees through the Reserve Bank.
Before the Supply missions were shut down around 1989 — the year Rajiv Gandhi's government was voted out of office for the Bofors scandal — they had facilitated the procurement of naval spares from the U.K. and components for the newly launched Integrated Guided Missile Development Programme.
`Safe' brokers
But the ban on agents after the Bofors scandal, however, spawned a new and `safe' defence broker in India — the Defence Public Sector Units. Being state-owned, the eight DPSUs were immune from the ban on agents, as India's predominantly Soviet-equipped military began looking Westwards in the early 1990s to replace and upgrade its ageing hardware, their role in brokering this switchover steadily increased.
Consequently since the early 1990s DPSUs such as Bharat Electronics Limited, Bharat Dynamics Limited, Bharat Earth Movers, Electronic Instrumentation India Limited, Hindustan Machine Tools, Hindustan Aeronautics Limited, Mazagon Dock Limited, Mumbai, and the Garden Reach Shipbuilders and Engineers, Kolkata, have profited considerably, acquiring defence equipment, often accompanied by a transfer of technology (ToT) for local manufacture, usually to fellow DPSUs.
But successive reports by government committees have revealed in excoriating reports that the ToT was merely symbolic, with the DPSUs opting merely to assemble the equipment after importing it in kit form.
"By acquiring defence equipment through the DPSUs, the MoD merely legitimises agents through the back door," a MoD official conceded.
He said the DPSUs, after striking a deal with local agents representing overseas defence vendors and having negotiated a purchase almost exclusively through them, entered into a contract with the MoD to supply the Services this same equipment but at exorbitant rates. In the process they neither built their technology base nor struck a blow for the much-vaunted self-reliance touted by every government.
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