Defence Minister Manohar Parrikar, in a policy review meeting with senior officials of his ministry’s Defence Acquisition Council (DAC) on Tuesday, made sweeping changes in the government’s defence manufacturers’ blacklisting policy to ease sourcing of equipment for the armed forces. The new policy will remove restrictions on blacklisted firms and implement a new framework where manufacturers will be allowed to appoint agents, but they will face heavy fines and even prosecution if they are found to be flouting any rules.
“Unlike in the UPA rule, when the government kept at least 12 firms on its blacklist at any given time, the blacklisting of defence manufacturers will now be used in the rarest of rare cases,” a top source in the Ministry of Defence (MoD) told this newspaper.
The ministry contends that strict blacklisting reduces options for the armed forces and allows corruption in a monopolised market. “It is an important step since the existing rigid norms don’t give many options to the armed forces to procure equipment. This rigidity also allows a lot of corruption. It also leads to reduced availability of quality equipment as the market is monopolised by some companies. The new policy will force the manufacturers to mend their ways if they plan on doing business with us. Otherwise, they will face strict punishment,” the source said.
The government is focusing on easing norms and increasing fair competition so that Indian companies can have a chance at revival and Indian manufacturers don’t fall behind foreign companies.
“We are not in favour of killing competition. Many firms were blacklisted under the previous regimes, not necessarily because they had violated the rules or had low-quality equipment to offer, but because of lobbying by established companies with raw material suppliers and government officials to cripple the competition. A panel of ‘trusted companies’ was created by the defence procurement department under unclear explanations. We want to get rid of all such nonsense,” he said.
In order to rein in offending companies, the new policy will put the responsibility of the agent’s action on the hiring firm.
“The company will be solely responsible for the actions of its agents and they will be required to formally declare their relation with the agent each year till the contract terminates. If the firm does not do so, then it will have to pay the contract amount to the government, after which they will face possible prosecution,” he said.
While pointing out that the fees and consultancy sought from the agent will have to be declared in advance by the firms, he said: “The government will also have to be informed within a maximum of 15 days after hiring an agent or replacing the agent midway into the negotiations with the ministry.”
The new policy aims to make violations prohibitively expensive, according to the ministry. “A graded penalty system is being formulated that will depend on the enormity of violations and malicious intent. The government’s idea is to make violations by manufacturers prohibitively expensive so that there is no scope of encouragement for any infringements,” he added.
Observers say that these changes in policy indicate a fresh pragmatism in government as strict action taken against manufacturers by the UPA government severely affected India’s defence preparedness.
When the UPA blacklisted Tatra Sipox—a firm which supplies the armed forces with specialised vehicles on which missiles including those with nuclear warheads are mounted and carried—nearly 10% of the vehicles were grounded as there was a critical lack of spares for a long period as investigations dragged on.
“We were in a quandary. A sizeable portion of the fleet carrying nuclear and conventional missiles had to be grounded with no chances of any spares arriving,” the official said.
Parrikar eventually allowed the armed forces to begin negotiations with another independent entity of Tatra-Sipox, which did not have any allegations of wrongdoing against it.
The blacklisting of gun and artillery manufacturers Bofors and Denel effectively meant that the Indian Army was not able to upgrade its artillery guns. “India acquired field guns last in mid and late 1980s. After a few years, none of them received any spares or maintenance support from the original suppliers. So it does hurt our defence preparedness.”
The DAC had in January made new clauses to the proposed draft Defence Procurement Policy (DPP). “India was considering a negotiated resolution with the accused firms, which was akin to deferred prosecution agreements that are followed in the US and the UK. This was one of the recommendations made by the expert committee which was constituted by Defence Minister Manohar Parrikar,” a well-informed source in the Department of Defence (Acquisition) Procurement told this newspaper.
The DAC is also expected to take a decision on a report on strategic partnership submitted by former chief of the Defence Research and Development Organisation, V.K. Aatre.
“There is a well justified fear that strategic partnerships will work against small and medium-scale manufacturers. The policy pursued by the previous regime (under former Defence Minister A.K. Antony) insisted that in case any defence deal is even remotely linked to any allegations of corruption, the company concerned should be automatically blacklisted from further deals,” he added.
At present, the ministry has 15 companies including six manufacturers blacklisted by the MoD. As many as 23 other companies are under the scanner on allegations of corruption.