Blame the defence agent who refuses to go away

Underneath the corruption scams plaguing the defence forces is the ubiquitous but banned defence agent or middleman representing myriad overseas vendors who eases their material into India through the corrupt and complex bureaucratic corridors of the country's civil and military establishment, writes Rahul Bedi

Startling revelations by India's army chief, General VK Singh, that he was blatantly offered a backhander by a lobbyist to approve a procurement deal, once again raises the ticklish issue of arms agents and their access to senior military and defence ministry officials.

In an interview to The Hindu and some television news channels, Gen Singh recently claimed that within a few months of becoming chief in early 2010, a retired three-star army officer had blatantly offered him Rs 14 crore in his South Block office to clear the pending purchase of a consignment of some 700-odd heavy duty trucks.

Gen Singh had halted their procurement on grounds of operational efficiency and high price and reported the bribery incident to Defence Minister AK Antony who belatedly has ordered a Central Bureau of Investigation inquiry into the allegations.

But l'affaire bribery, fuelled by trite television debates involving ill-informed and partisan retired military men has, like most other corruption scandals in India, become mired in mirrors and smoke, inundated with half-truths, assumptions and wild allegations and outlandish claims.

But underneath all this lies the ubiquitous but banned defence agent or middleman representing myriad overseas vendors who eases their material into India through the corrupt and complex bureaucratic corridors of the country's civil and military establishment.

"The innumerable links in the arduous materiel selection process all have to be oiled up and down the supply chain from the time tenders were issued, trials undertaken and price negotiations launched" a senior military official said, declining to be named on such a sensitive matter.

Others involved in military procurements privately concede that the ban on agents imposed a needless hypocrisy upon them as they frequently and openly meet them to exchange information and discuss requirements and, above all, liaise for trials which in themselves are a hugely complex affair.

The widely accepted practice of using agents becomes even stranger when all principal vendors are made to declare before inking contracts that no middleman was employed.

Soon after returning to power in 2004, the Congress party-led coalition introduced, amidst much fanfare, the 'integrity clause' that is now mandatory in all Indian military contracts to obviate allegations of corruption and to ensure 'un-prejudiced' dealings.

This clause makes it incumbent upon the supplier to 'unequivocally' confirm that no individual or firm was employed to facilitate the deal. It further states that the contract would be terminated, at any stage, if it were established that this declaration was incorrect and the money refunded.

The dilemma over defence agents has haunted successive administrations, particularly after the 1987 Bofors howitzer scandal -- formally closed only earlier this month after 21 years of inconclusive investigation costing Rs 250 cores that indicted no one -- and each one has been unable to either deal with it or neutralise it by rendering the inherently corrupt and byzantine
system easily negotiable and genuinely transparent.

After assuming office in 1999, former defence minister George Fernandes reinforced the ban on agents and ordered an inquiry into all military purchases, including spares acquired since 1985 worth over Rs 700 crores.

The Central Vigilance Commission, the CBI and the Comptroller and Auditor General were tasked with probing the alleged involvement of middlemen and to recommend efficient and corruption-free procurement 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 resulted in September 2001 to ambiguous and contradictory guidelines to register them with the ministry of defence by recording their  contractual, banking and financial details.

Meanwhile, local agents admit their business is nothing but a public relations game, in which catering to the greed of relevant officials, especially their wives, ensures success.

Over and above the large moneys paid to them, defence agents on their visits abroad are swamped with shopping lists from military and MoD officers for items as diverse as golf sets, crystal-ware, jewelry and artistic baubles.

One such representative of an overseas principal 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 earlier 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 was that the Indian supply missions attached to the embassies in Tokyo, Washington and London continued to make purchases through officially acknowledged agents based in India primarily for 'questionable' equipment for the Defence Research and Development Organisation.

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 in the late 1980s they had facilitated the procurement of varied equipment for the DRDO's newly launched Integrated Guided Missile Development Programme.

But the ban on agents after the Bofors scandal 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 'nineties to replace and upgrade its ageing hardware and their role in brokering this switch over exponentially increased.

Consequently, from the early 1990s DPSUs like Bharat Electronics Limited, Bharat Dynamics Limited, Electronic Instrumentation India Limited, Bharat Earth Movers Limited, Hindustan Aeronautics Limited, Mazagaon Dockyard Limited and the Garden Reach Shipbuilders and Engineers, Kolkata, to name a few, profited considerably acquiring defence equipment, often accompanied by a transfer of technology for local manufacture, usually to fellow
DPSUs.

But successive reports by parliamentary defence and other watchdog committees have revealed in excoriating reports, often ignored by the media or reported on cursorily, that this ToT was merely symbolic, adding little or nothing to capacity building or enhancing self-reliance to meet the goal of reversing the trend of importing 70 per cent of India's materiel requirements.

At best, technology transfers had bolstered the respective DPSUs' engineering skills to produce non-critical components. Critical items continue to be directly imported for assembly for a host of platforms, missiles, aircraft and other defence equipment presently in service with the Indian military, including the Tatra trucks at the centre of Gen Singh's bribery allegations.

"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.

Conversely, the DPSUs' monopoly also resulted in supplying equipment to the 'tied customer' that the Indian military has become at hugely inflated rates.

The army, for instance, is being supplied with the DRDO-designed, OFB-built but problem-ridden Indian Small Arms System 5.56 mm assault rifles for around Rs 20,000 each. This is almost three times what it would cost to import AK-47 ARs: the soldiers' preferred weapon of choice especially for those deployed on counter-insurgency operations in insurgency-ridden
Kashmir.

Similarly, Russian infantry combat vehicles built locally under licence are costlier than those imported in completed form. And the Comptroller and Auditor General in many of its reports had repeatedly rebuked HAL for spending twice the amount to build Su-30 MKI multi-role fighters at its Bengaluru unit than it would have cost to import them directly.

And more recently, Antony told Parliament that the upgraded version of the indigenously designed Arjun MK II tank would cost the army an astronomical Rs 376 crore or $ 7.4 million per unit.

In comparison, the Russian T90S MBTs, of which the Indian army imported 647 in completed and kit form 2001 onwards and plans on building another 1000 locally under licence to equip the bulk of its armoured formations, were acquired for $ 2.2-2.5 million per unit.