DEFENCE NOTES

New Delhi, 29 May 2006

Spend But Be Accountable

CAG FINDS FLAWS IN ARMS DEALS

By B.K. Mathur

Defence expenditure is one thing which has never been objected to by anyone in the country, including leaders of the Opposition parties.  It is a matter of national security, which can’t be compromised at any cost. But what is invariably questioned in Parliament and outside is misuse of massive budgetary allocations and lack of accountability.  Even if budgetary allocations of the Defence Ministry have not been discussed on the floor of Parliament for years, institutions and individuals connected with the Ministry’s policy and planning point out grave misuse of funds in military purchases.  Parliamentary Committee reports and scrutiny by the Comptroller and Auditor General (CAG) of India highlight again and again financial irregularities.

In its latest report tabled in Parliament the other day, the CAG has pulled up the Government for its failure to exercise adequate care in negotiating huge armament deals with Russia, a country which even today is one of the major weapons and systems supplier to India.  The CAG has pinpointed three major defence deals from that country – Rs.6,500-crore agreement for the purchase of Sukhoi-30 multi-role fighter aircraft signed in 1996, Rs.3,000-crore deal to buy T-90 Main Battle Tanks concluded in 2001 and even the earlier agreement to acquire T-72 MBTs was flawed, observed the country’s financial watchdog and noted “there is need for the Government to freeze cost parameters, especially in cases of licensed-production.”

The CAG has cautioned that care need to be taken to ensure that transfer of technology for such expensive machines and systems should encompass the lifetime support system for the weapons.  Failure to do that invariably ends in a disaster. There has been an almost one hundred per cent cost escalation in the licensed-production of Sukhoi aircraft project. The indigenously-manufactured Sukhoi aircraft is presently costing about Rs.28.60 crore more than the import cost.  In the case of T-90 MBT kits, the supply has not been forthcoming, as time-bound clause has not been incorporated at the agreement stage.  The Assembly of the 186 tanks was to start by March 2005, but so far only 85 tanks had been delivered.

In this connection, remember, the stipulation of license-production at home was the main reason why the Indira Gandhi Government preferred to go in for modernized military armament from the erstwhile Soviet Union in late 1960s. Western equipment, though superior to the Russian machinery, was not preferred because the suppliers, including the US companies, were not willing to export technology for the production of their state-of-the-art machinery. Also, two other considerations weighed in favour of the Russian machinery – reliability for the supply of spares etc. and Rupee-payment for all the purchases.

Both reliability and Rupee-payment advantage are not really available for the induction of Russian machinery after the disintegration of the Soviet Union. Only transfer of technology for indigenous production of the Russian machinery is still on offer.  And, importantly, India’s defence production units have by now become accustomed to handling or producing Russian machinery under licence.  The users too are now comfortable on Russian machines, be they aircraft, warships or mechanized machines for the Army.  The present UPA Government at the Centre has plans to induct several state-of-the-art military machines at high cost. Russian, American and European  companies have offered their produce.

In fact, the Service Headquarters had never had it so good as now, with Pranab Mukherjee as the Defence Minister. Official figures show that during 2004-05 India’s armed forces spent a staggering $6 billion to purchase from abroad weapons and weapon systems. With India going on a buying spree for military machines, defence industry in militarily advanced countries has got busy in marketing their produce in the country, as reflected in the foreign participation at the Def-Expo in New Delhi earlier this year.  As many as 20 armament majors had their eyes on India’s plan to acquire 126 multi-role combat aircraft for the Indian Air Force, involving a large expenditure of about $6.5 billion.  Negotiations for these are on, while France has already finalized contract for the $3.5 billion submarine project and the UK has completed deal for $1.8 billion Hawk AJT (advanced jet trainer) deal.

Before going into the controversies about the charges of slush money in the AJT and Scorpene deals, let us first understand that the defence industry is quite different from any other production unit.  State-of-the-art military machines cannot be produced under one roof, because each one has hundreds of components, big and small, many of which are to be imported.  It is never economically viable to set up a separate unit for their production, and hence the easy option of direct import. That also helps the people in authority to not only travel abroad frequently but also to make money, call it slush money or bribery. Take the case of the AJT deal at the end of which India agreed to pay about Rs.800 crore more than the Price Negotiations Committee, (PNC) had finalized. Later the, then, Defence Secretary told this writer that extra money had been agreed to for “spares and other services.”

The latest controversial deal that constitutes part of the present Government plan of induction of sophisticated weaponry in the three military services is the Scorpene submarine deal involving as high an amount as Rs.18,798 crore.  This deal has many disturbing elements, involving massive kickbacks as revealed by the NDA Government’s former Defence Minister, George Fernandes. The NDA has claimed that the recent exposure  is one of the biggest corruption scandals of the UPA Government which, as the Navy itself has now admitted, has gravely jeopardized India’s national security. This includes the infamous “War Room Leak” at the Naval Headquarters in New Delhi.

Worse, certain foreign and Indian nationals have been charged of involvement in the deal, leading to illegal entry of middlemen. A four per cent commission on the contract amount, between Rs.500-700 crore, has reportedly been offered to make the deal through by the Thale, the French company known internationally for bribing political leaders all over the world. The company, which has been blacklisted by the World Bank for its questionable dealings, has offered to the Indian agents and other concerned people the biggest-ever amount as bribery, one that is far bigger than the much-publicised Bofors gun deal, which caused the fall of a Government at the Centre.  The amount in that deal was a meagre chillarh, Rs.64 crore by the present standard.

One can go on and on describing how vested interests have finalized major defence deals in utter disregard of the national security interest. Demand for bribery means lacunae left in final agreement.  These have been repeatedly pointed out, and for years, in this column, in Parliament and outside.  But anti-national practices to serve self interests do not seem to be ending. What the CAG has pointed out in its latest report requires a serious thought.  Defence planners must exercise care in negotiating huge armament deals. Failure to do that will surely be at the nation’s peril.---INFA

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