Make, buy in India to avoid scams

Make, buy in India to avoid scams

By SHUBHABRATA BHA... | 7 May, 2016
Youth Congress members protest against the NDA government over the Agusta-Westland issue outside the PMO on April 28. IANS
Privatise infrastructure, export and save jobs.
The 1948 Jeep scandal was the only scar on India’s defence procurement for the first four decades of Independence. Since Bofors and HDW scandals broke in 1987, the political discourse has tended to be determined by defence scams. Any change of regime brings in its train new allegations. When Pranab Mukherjee became UPA-1 Defence Minister he ordered a CBI inquiry into 38 contracts of the NDA regime. As in Bofors, in which the CBI spent Rs 250 crore investigating a Rs 64 crore scam, nothing materialised from these probes. The CBI is constrained, perhaps, because it is corroborative rather than circumstantial evidence, which is needed by it to convict. By some coincidence those who they need to interrogate fly overseas by the time investigation begins.

In the early years of Independence, Nehru’s pacifism dismantled the indigenous defence industry, both state-owned and private. The jolt of 1962 spurred action: the Department of Defence Production was set up. Forty years ago, in the Budget session of 1976, the Ministry of Defence’s (MoD’s) annual report informed Parliament that India had practically achieved self-sufficiency as regards field guns, mountain guns, heavy mortars and light anti-aircraft guns. Self-reliance in small arms and ammunition had been reported in earlier years. India exported arms. Jane’s Defence Weekly listed Indian products, notably the field gun. The MoD had an export team headed by Major General Alfred. Besides sales to some Asian nations, India’s munitions also armed the liberation struggles against the Portuguese in Africa. The Mukti Bahini of Bangladesh was fully armed with Indian equipment—defence production was diverted to the Heavy Engineering Corporation in Ranchi so that India’s Ordnance Factory (OF) markings were not found with the underground soldiers.

India’s defence industry provided sinews to the British effort during World War II: Made in India equipment was used in the eastern theatre as well as in the Middle East. Besides the state-owned Ordnance Factories (established as adjunct to Britain’s Royal Ordnance Factories in 1801), Tata and Walchand facilities for production of armoured cars and aircraft, respectively, at Jamshedpur and Bangalore, contributed to the war effort. The British took over the Bangalore facility and handed it over to the US Air Force during the war.

At the time of Independence, all 16 Ordnance Factories (some set up during the War period) came to India; none were located in the two territories of Pakistan. Tata participation in defence production ceased. The Bangalore facility was the precursor of present day HAL.

Defence purchases took place in the 1960s and 1970s: while buying most equipment, India insisted on transfer of technology so that indigenous manufacturing could ensue. The Tughlaqabad range of the Army was referred to as the “Bofors range” due to the significant items of Swedish origin tested there. L70 anti-aircraft gun, Carl Gustav infantrymen’s anti-tank weapon and many such items were imported, but thereafter manufactured in India. Erstwhile USSR also agreed to transfer of technology of munitions as well as aircraft. As for Carl Gustav, Indian acquisition and manufacture of the system preceded NATO’s induction of the weapon. Sweden was preferred for items not available from the Soviet bloc as it was a neutral country, free of US encumbrances.

Before inducting the Indian field gun, the Army tested it against imported platforms at Tughlaqabad, and opted for Make in India. The Field Gun Factory was set up at Kanpur in the late 1970s during the Janata regime: it was touted as the best engineering facility of its kind East of Suez.

Liberalisation by the Narasimha Rao government in 1991 saw the entry of private sector in component manufacturing (the 1956 Industrial Policy was revised). NDA Defence Minister George Fernandes threw open defence production to the private sector in 2002: cent percent private equity with 26% FDI was invited. The FDI cap was raised to 49% by NDA’s Narendra Modi regime in 2014.

According to a reply by Defence Minister Manohar Parikkar on 29 April in the Lok Sabha, over the past two years, the total inflow of FDI in defence has been Rs 112.35 lakh—this, just above a crore, investment by foreigners perhaps reflects their desire that 51% FDI be allowed: either you buy foreign abroad, or let “Make in India” be in foreign hands. It’s a Hobson’s choice.

Many Indian firms including Tata, Walchand, Mahindra, L&T, Kalyani and Ambani have entered the fray. Most of them have impressive tie-ups abroad. Make in India production on the ground, though, is restricted to the government entities, whose technology is not state of the art. And this opens the window for purchases abroad. In defence imports, India insists on offsets: 30% of components need to be sourced from India. Analysts opine that often offsets provide a conduit for payoffs.

A Stockholm-based think-tank has analysed that with 14% of total global arms imports, India is the biggest buyer (according to CII estimates over next 12 years India will buy weapons worth $100 billion). Since 2006, India’s defence exports have shot up by 90%. China, the next biggest importer, accounts for almost a third of India’s at 4.7%. China has boosted indigenous manufacturing and is striving to emerge as a top arms exporter.

Defence deals have a long gestation period. At least 18 agencies of the MoD provide clearances. Field trials of shortlisted vendors are also time consuming. The decision taken in the early 1980s that no agents will be allowed has added to the proclivity of hush-hush dealings. Arms agents are seen as cloak-and-dagger personage. India purchased arms abroad in the 1960s and 1970s. Established agents of manufacturers were stationed in India. In those days of foreign exchange crunch, it was preferred that the Indian agent of the supplier be identified in the deal so that the amount of his commission, as determined by the supplier, be deducted from the foreign exchange component and the payment be made officially in rupees. Once this created problem for a wheeler-dealer, who had transgressed into a registered Indian agent’s territory. When the deal was signed the government paid the registered dealer, who, seeing the activeness of the other dealer, had remained dormant. The Janata Party was in power and Babu Jagjivan Ram was the Defence Minister. The dormant dealer laughed all the way to the bank due to the openness of the then policy.

The purchase of Mirage-2000 from France in 1983 was touted as the first “no-agent” deal. Speculation was rife about whose pockets were lined. But no scandal ensued. (India has been negotiating the purchase of 126 aircraft from France over past two decades. The deal is said to be reaching finalisation now.) During the Kargil skirmishes, the French aircraft along with the much maligned Bofors howitzers provided the reason for India’s pride.

The purchase of HDW submarines caused a flutter when as Defence Minister V.P. Singh raised brouhaha side by side with Bofors in 1987. The first questions on the deal were raised by this writer in Sunday (edited by M.J. Akbar) in 1983. Media did not it follow it up.

A former Navy chief, Admiral S.M. Nanda, hero of the 1971 war, was named in the HDW matter post V.P. Singh’s outrage. The probe made no headway. The name of the distinguished admiral’s son, Suresh Nanda, often crops up in defence deal grapevine. He has been named, along with Mohinder Sahni and Sudhir Choudhrie of London as a UCM (undesirable contact man) by CBI in 2012. (Since 1966, CBI circulates to Secretaries in the government a list of UCMs: They are dealers in all fields. The present UCM list has 23 names. The three mentioned here are in the field of defence.) Suresh Nanda is the owner of Claridges, the uptown New Delhi hotel from where James Christian Michel, named in the Agusta matter, is said to have operated. Sudhir Choudhrie and Nanda featured in the Tehelka disclosures. Three years back, Choudhrie was given a lifetime achievement award by a British Indian chamber in London for his contribution to commerce and industry. Choudhrie is related by marriage to a senior Congress MP who was a minister in UPA. Another name that crops up is of Vipin Khanna. His son Arvind was a Congress MLA and a confidant of Amarinder Singh when he was Chief Minister of Punjab. Most of those whose names float in the grapevine are honourable men. The CBI probes do not diminish their stature.

James Christian Michel, now in the eye of the storm, is the brother-in-law of a member of the House of Lords, who was an equerry to the Queen during the Labour regime in UK. There have been media reports about his father, Wolfgang Michel. Wooly, as W.R.M. Michel was known, was no ordinary person.

In 1948, PM Jawaharlal Nehru(L) and then Indian High Commissioner to Britain, V.K. Krishna Menon were embroiled in the Jeep Scandal, which was the first such case in independent India.He was well connected in India among politicians, bureaucrats and even the intelligence community. His name finds mention in two books, The Arms Bazaar: from Lebanon to Lockheed by Anthony Sampson and The Cicero Spy Affair by Richard Wires. This writer first wrote about Wooly Michel in Sunday in 1982: India was trying to dispose of its outdated Centurion tanks as scrap. In cahoots with a businessman close to the Congress (now deceased), Michel used his connections in the Apartheid regime of South Africa to sell these tanks, not in scrapped condition but intact, India’s avowed opposition to that regime notwithstanding. James Michel has said in his interview to the Hindu that he had fallen out with his father in his last days .That seems to be true. But the “goodwill” of the Michel name has been around in New Delhi over past four decades and that cannot be overlooked perhaps.

James Michel had written to Narendra Modi offering information some months back. When he got no response he spoke about the purported “brush-by” meeting between Indian and Italian PMs in New York (denied by the government). He is in Dubai. By some coincidence he flew out of India just before the CBI case was started two years back—a great coincidence considering that Ottavio Quattrochhi had done likewise in 1991. While focus is on Lalit Modi and Vijay Mallya, no one seems to mention the Naval War Room leak suspect, Ravi Shankaran, who is eluding the CBI while sojourning in London.

Where do we go from here? Will wham-bam-thank you-scam be the political paradigm or will these scams be a learning? Commissions in defence deals are accepted norm in many countries. And that makes CBI’s task uphill, apart from other “caged” compulsions.

The way ahead is to buy; Make in India. Like UK, where Royal Ordnance Factories and other defence PSUs have been privatised, India should consider privatising India’s existing defence production infrastructure. With its 40 factories and 1.7 lakh workforce, the Ordnance Factory Board, along with Railways and Department of Posts, is a large employer in the government sector. Skilled workforce, drilled in security requirements of defence production along with vast tracts of land assets which negate need for land acquisition make this organisation along with other defence PSUs a worthwhile buy for an entrepreneur interested in making money from munitions manufacture.

Shubhabrata Bhattacharya is a former Editor of Sunday and of National Herald


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