Defence Industry

Middlemen in Defence Procurements
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Issue Vol 22.1 Jan - Mar 2007 | Date : 14 Jan , 2011

Dissuasive Features       

Though the above policy was issued in 2001, not a single registration has taken place to date. The Defence Minister was candid enough to concede this year that no agent had come forward for registration and the scheme was a total non-starter.

Failure of the scheme can be attributed to its following dissuasive features:-

  • Revelation of Agent’s Particulars. Information required to be submitted spans the complete gamut of an agent’s past business activities, current professional dealings and financial profile. Even details of his Indian and foreign bankers have to be intimated.
  • Accreditation of Agent. MoD reserves the right to approve accreditation of an agent. MoD can ask the foreign supplier to change its agent at any stage.
  • Payment of Commissions. Scale of commission will be as per Government’s guidelines. All payments will be made in Indian rupees and openly declared. Details will be duly reflected in the contract documents.
  • Agent’s Conduct. Undue restrictions have been imposed on the conduct of agents. They are debarred from having any contact, social or official, with functionaries not so authorised.

Many consider the above instructions to be too intrusive and totally unwarranted. According to them, details sought by MoD transgress professional privacy and infringe upon economic confidentiality. Additionally, the right to choose agents has been abrogated by MoD, as a foreign supplier has to engage an agent who is acceptable to MoD. Even the scale of commission and mode of its payment are governed by MoD.

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As can be seen, the principal thrust of the policy guidelines issued by the Finance Ministry in April 1989 was to conserve precious foreign exchange and prevent evasion of tax. Conduct of agents was never an issue. On the other hand, MoD instructions are totally directed towards regulating actions and functioning of agents.

“It appears that the Indian Government thinks very poorly of defence agents. Even the tone and tenor of policy instructions convey the impression that agents are a necessary evil needing to be kept on a tight leash lest they pollute the environment”, commented a foreign supplier.

Disinclination to come forward for registration as authorised agents can be attributed to the following reasons:-

Agents can provide additional information to the Service HQ regarding latest technological advancements taking place in the world to facilitate formulation of pragmatic Qualitative Requirements.

  • Agents believe that Government instructions paint them as unscrupulous and devious characters.
  • They remain apprehensive of MoD and its monitoring mechanism.
  • Information required for registration is too invasive for comfort and can be used by different Government agencies to harass them.
  • Their exposure will make them face extortion demands, both from political parties and the underworld.
  • Frequent changes in Government policies make them wary of revealing their operations as once out in the open they will lose the shield of anonymity for ever.

Most importantly, they fear that the current trend of investigating all defence deals negotiated by previous regimes will unnecessarily drag them into rancorous inquisitions and protracted court cases. According to many agents, this single reason acts as the biggest deterrent.

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The views expressed are of the author and do not necessarily represent the opinions or policies of the Indian Defence Review.

About the Author

Maj Gen Mrinal Suman

is India’s foremost expert in defence procurement procedures and offsets. He heads Defence Technical Assessment and Advisory Services Group of CII.

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