Indian Defence Review

In 1996, a Parliamentary Standing Committee on defence had advised the government to earmark at least ten per cent of defence allocation to Research and Development as against the historical trend of six per cent only. The “Make” procedure in our Defence Procurement Policy (2008) also envisages that indigenous R&D initiatives by the private players for developing prototypes would receive 80 per cent of the project cost. The policy statement from the MoD has also stated from time to time that it would provide funding to universities and private research outfits for pursuing R&D for indigenisation of strategic systems.

The Supreme Court would hear a Public Interest Litigation (PIL) which seeks to file a First Information Report (FIR) against those at the helm in the previous government in the AgustaWestland Helicopter case. The government is also on overdrive to politically fix its arch rivals by blacklisting AgustaWestland and its parent company Finmeccanica and also establish another corruption scandal against the then ruling party. More so, since in the Bofors case (1980) could not be taken to the logical conclusion, despite the best efforts of the crusading journalist. It would, therefore, be appropriate to run through a brief history of this case so far and also understand how defence contracts operate and are different from contracts of other civil departments.

Overview of the Case

In 2010, the UPA government signed a contract valued at Rs 3,600 crore for twelve AW101 helicopters for use by VVIPs. Three years later, the deal was put on hold after Bruno Spagnolini, CEO of AgustaWestland and Guiseppe Orsi, Chairman of the parent company were arrested on charges of bringing middlemen in India to clinch the deal with the Indian Air Force (IAF). This spurred the then Defence Minister to order a probe into the deal. The alleged middleman in the deal Guido Haschke revealed that the contract was signed with the help of the Indian contacts and the company had allegedly paid 30 million Euros as bribe. Initial investigations by the Italian prosecutor revealed that Air Chief Marshal SP Tyagi had met Haschke before and was in collusion with his cousins Julie, Sandeep and Dosca Tyagi, known defence agents.

In a judgement by the Milan court in Italy, Tyagi’s name appeared more than once. Sonia Gandhi’s name was also mentioned as the “driving force behind the deal” in close concert with Ahmed Patel also came up in the conversation held between the three middlemen. In April 2016, Guiseppe Orsi and Spagnolini were sentenced to around four and half years’ imprisonment. Air Chief Marshal Tyagi is the first Chief of the Air Staff who has been put behind bars by the CBI. He was given bail by the court as no clear money trail could be established by the CBI. The latest court proceedings in Delhi High Court will be against the bail given on December 26, 2016. Tyagi’s counsel had clarified that the decision to procure AW101 helicopters for use by VVIPs was a “combined decision” and the Prime Minister’s Office was also part of it.

Defence Procurement Procedure over the Years

Defence procurements have generally been shrouded in smoke screen with agents and middlemen working overtime in an opaque manner. The Bofors scandal unearthed how middlemen were involved in bribing politicians at the highest levels to clinch the deal. It showed how despite the best efforts by an indefatigable journalist, Chitra Subramaniam and by the CBI, codes of secret accounts ‘Tulip’ held in a tax haven such as Switzerland could not be decoded. All the alleged players are now dead and gone while its ghosts have not been put to rest.

It was N. Vittal, the CVC, who goaded the Ministry of Defence (MoD) to have a transparent procurement procedure. The Defence Procurement Procedure (DPP) 2005 is a product of that push. For the first time, the procedure affirmed the template of probity and transparency over hasty and opaque procurement. In particular, it emphasized that the prequalification criteria viz Qualitative Requirements (QRs) and the selection criteria for placing contracts should be known to all eligible vendors, upfront in the Request for Proposal (RFP).

Bitten by the bug of Bofors, the contract conditions include clauses like forbidding engagement of agents and payment of agency commission and preempting “Undue Influence”. But the heart of the acquisition procedure is framing of QRs to encourage competitive bidding. The Service Headquarters draw up the QRs that are subsequently vetted by the MoD. But it must be conceded that the domain expertise for framing such specifications resides with the service officers and the civilian set up in the MoD is largely oblivious of the technical nuances.

Major defence acquisitions by all countries are marked by a combination of monopsony (single buyer like the government) and oligopoly (few sellers). Therefore, any obvert attempt to narrow down or tailor make the specification, is bound to lead to single tender purchase. This is against the basic tenet of competitive tendering and level playing field. This is how the AgustaWestland deal has been queered by “diluting specifications” subsequently, to bring the company into the tendering ambit.

Non Enforcement of Contracts

Whenever there is an allegation of payment of agency commission or exercise of under influence, the Ministry/service HQs is expected to exercise “due diligence” and based on evidence, cancel the deal and blacklist the companies. In 2007, the Anti-Material Rifle deal with Denel Corporation of South Africa was cancelled due to involvement of agents and their bank guarantee towards advance paid was also encashed. However, in the present case, while the deal was put on hold in 2013, no action was taken to blacklist the company nor was any vacation taken against the alleged culprits under the Prevention of Corruption Act, 1988.

The DPP 2008 introduced a clause called “Integrity Pact”, based on an intercession by the Transparency International. This is a unique clause where the “no bribery” commitment has to be made by both the seller and the government, as part of the terms of contract. Any allegation of bribery thereafter, has to be handed over to an independent watchdog for investigation. In India’s case the CVC is the independent monitor. Strangely in the AgustaWestland case, the Integrity Pact clause has also not been invoked.

Dilatory Legal System

The Indian legal system has been unduly dilatory. The World Bank Report (2016) shows India’s dismal record of “enforcing contracts” with a ranking of 137, with the average time taken to resolve disputes exceeding five years. The Italian court in the AgustaWestland case has taken less than a year to penalise the proven suspects. Most of the emerging marketing economies such as Singapore have an excellent record in this regard.

Air Chief Marshal Tyagi has contended that the revision of specification has been the “handiwork of a team”, including the PMO. This is indeed true as the key players in this process are the National Security Advisor in the PMO and officials of MoD. The dilution in the ceiling to be reached by the helicopter was an afterthought, where the collusive role of Tyagi, PMO/MOD officials and politicians, cannot be ruled out.

Rule of Law

The outgoing Air Chief has gone on record defending the innocence of Air Chief Marshal SP Tyagi in the deal. He has also stated how it has affected the morale of the Indian Air Force, both officers and men. As rule of law is the sine qua non of our Constitution, in Raj Narain vs Indira Gandhi Case (1975), the Supreme Court rightly struck down the 39th Amendment to the Constitution as it tried to insulate the Prime Minister (PM) from judicial scrutiny in the event of an election malfeasance. The law of the land is expected to place its hand on its ordinary citizens, super star Salman Khan, SP Tyagi or the PM evenly, when there is a manifest case of collusive manipulation. Sadly the politicisation of the CBI to settle political scores, unduly dilatory process of our justice dispensation system, have emasculated the hallowed intention of defence contracts viz to ensure transparency, probity and accountability and bring to book crooks quickly.

Towards Higher Self Reliance and Transparency

The Self Reliance Index, as per the Kalam Committee (1995) was 0.3; which the Committee had recommended to increase to 0.7 by 2005 through a combination of increasing R&D investment and technology transfer. Sadly for the major subsystems such as propulsion, weapons and sensors, our dependence on foreign suppliers invariably is around 70 per cent. Our critical knowledge gap and design capability has made us Defence PSUs and ordnance factories prisoner of imports and converting imported designs to products. Be it the Light Combat Aircraft (LCA) which is powered by a US engine (GE F-404) or the Main Battle Tank (MBT) which is propelled by a German engine or a fighter aircraft which uses Air-to-Air Missile from a French company, the design to product record of DRDO and DPSUs is truly dismal. That is the main reason why the history of defence procurement has been ruined by charges of sleaze and sly operation of middlemen. In 2005-2006, an effort was made to register the agents as per the criteria notified by the Ministry of Finance. However, it was put on hold due to the political sensitivity it entailed. As long as a transparent procedure is not backed by the resolve to improve our self-reliance capacity of a critical system, scandals like AgustaWestland will haunt India in the future as well.

Concluding Thoughts

In 1996, the Parliamentary Standing Committee on defence had advised the government to earmark at least ten per cent of defence allocation to Research and Development as against the historical trend of six per cent only. The “Make” procedure in our Defence Procurement Policy (2008) also envisages that indigenous R&D initiatives by the private players for developing prototypes would receive 80 per cent of the project cost. The policy statement from the MoD has also stated from time to time that it would provide funding to universities and private research outfits for pursuing R&D for indigenisation of strategic systems.

The “Make-in-India” template of the NDA government and the Dhirendra Singh Committee, 2016, has also strongly recommended bolstering Public Private Partnership. The almost $6 billion MMRCA project for the first time, had envisaged that its licensed production would have substantial private sector involvement and not be hostage to the inefficiency of Hindustan Aeronautics Limited (HAL) as a behemoth. All these laudable objectives have remained dreams on paper as allocations for DRDO remain stagnated at six per cent of the Defence Budget. It is like allocation to higher education, the motherboard of frontline research, which remains stagnant around at one per cent over the year of India’s budget.

The Knowledge Commission (March, 2009) had strongly recommended to double it, as did the Kothari Commission (1966). The allocation priority of the government of the day to quality education and research funding of (two per cent), ramping up our indigenous research allocation both the DRDO (ten per cent) and increase in the total research allocation from 0.7 per cent to five per cent would have to seriously engage the Finance Minister’s attention in the upcoming budget. Our priority has to go beyond “remonetisation, cashless India to a more knowledge-enabled India” if we do not want to get rat-trapped in misuse by middlemen and be genuine value adding, rather than assemblers of imported subsystems. The public sector monopoly in production and DRDO as the prime research agency has to also give way to much greater private sector participation, not as contractors, but as partners in our pursuit for improving self-reliance index.