Indian Defence Review

Are Agents Really Needed in Defence Procurements

There is no doubt that it is best to do business directly without the intercession of middlemen as direct communication between buyer and seller eliminates needless wrangling and saves on commission costs. But that is well nigh impossible in international trade. As a matter of fact, agents are ubiquitous in all trade transactions and do perform many useful functions. They bring buyers and sellers together, assist in negotiations and provide post-contract services.

“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.

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. Inputs provided by various agents as regards indicative cost of proposed acquisitions help seek appropriate budgetary allocations.

Field trials in India are carried out over varying terrain and different climatic conditions. Foreign suppliers need local help to import, maintain, transport and position their equipment for trials as per the given schedule. Agents provide invaluable help in this regard.

Determination of reasonable and fair cost of an equipment is a highly complex and arduous task. This has to be done well before the commencement of commercial negotiations. Inputs provided by different agents assist functionaries in the process. Agents also help resolve irksome issues that crop up during protracted contractual discussions and pave the way for negotiating a mutually acceptable contract.

Most importantly, agents enhance the quality of after-sales support. It is much easier to contact an Indian agency for engineering support and back-up service. Agents can also be of immense help in resolving performance and warranty issues as well. Significantly, local agents have a permanency of interest in good performance for future business opportunities.

Agents are in business to make money. This fact can neither be disputed nor held against them. Just because they promote their principals’ products to earn commissions does not make them unethical and ignoble. The Government must change its attitude towards agents and consider them to be useful associates.

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Agents also act as an interface between the suppliers and MoD, and provide an effective communication link. If that be so, prudence demands that efforts should be made to draw maximum benefit from their presence rather than shunning and forcing them to go underground. There is no doubt that their functioning needs to be regulated to enhance transparency and eliminate unscrupulous dealings.

Finally, by encouraging registration of agents, it is ensured that commissions are paid in Indian currency and are duly subjected to taxation.

The Current Status

Although the Government policy on the registration of agents has not been rescinded as such, the new Defence Procurement Procedure – 2006 (DPP-2006) contains the following provisos (see box for details) that effectively rule out any role for agents:-

Most importantly, agents enhance the quality of after-sales support. It is much easier to contact an Indian agency for engineering support and back-up service.

The Way Forward

The Prime Minister has accepted indispensability of agents for defence imports. In any case, all other Government departments are regularly dealing through agents without any apparent problems. Their functioning has been duly regulated and the agents have been receiving their legitimate commissions.

Agents are in business to make money. This fact can neither be disputed nor held against them.

To state that agents can corrupt officials shows a total lack of confidence in the integrity of Government functionaries. It really implies that all officials dealing with defence procurement are predisposed to corruption and hence must be kept away from temptations. That is a very juvenile view. Government cannot ban agents just because it is distrustful of its own functionaries. It is a sad reflection and a tacit admission of Government’s failure to find functionaries whose integrity is beyond reproach.

Government has in the recent years announced policy initiatives to attract Foreign Direct Investment in the defence sector. All prospective investors need local agents to identify and advise them about industries with envisioned prospects. They also arrange meetings and briefings.

Similarly, the new defence procurement procedure mandates that all contracts over Rupees 300 crores must necessarily have an offset obligation equal to 30 percent of the contract value. It is well nigh impossible for a foreign vendor to identify fields to fulfill his obligation and select suitable Indian industrial partners for the purpose. He has to take the help of local agents who are well conversant with available opportunities.

The Prime Minister has accepted indispensability of agents for defence imports. In any case, all other Government departments are regularly dealing through agents without any apparent problems.

MoD must facilitate registration by simplifying the procedure. It will be ideal to adopt the same procedure as is followed by other Government departments. There is no need to single out defence procurements. If considered essential, the monitoring mechanism can be further strengthened.

Selection of acquisition staff must be made more stringent. Thorough investigations should be carried out of their past record. And, once selected the Government must demonstrate full faith in them and protect them from slander.

Finally, the Government must adopt a long-term policy to instill confidence in the environment. There should be no knee-jerk reaction to every allegation that appears in the press. Enquiries must certainly be carried out where a prima facie case of misconduct exists. However, political witch-hunt should be avoided as that acts as the biggest deterrent for overt and legitimate functioning of agents.