By Ajai Shukla
Business Standard, 19th Feb 13
India leads the world in corruption in arms imports and the
gap is widening as we import more and more weaponry. But in taking action
against the guilty we content ourselves with political bluster and
self-defeating bans. Defence Minister AK Antony’s “strong action” against
Italian defence giant Finmeccanica, and its Anglo-Italian helicopter subsidiary
AgustaWestland, is aimed at making him sound like a man of steel but is, in
fact, a short-sighted reaction that is meant to --- but will fail to --- defuse
the opposition’s equally motivated criticism.
Mr Antony has unilaterally “initiated action for
cancellation of contract for procurement of 12 AW101 helicopters for the use of
VVIPs”, by sending AgustaWestland a show cause notice asking why New Delhi
should not cancel the Rs 4,000 crore contract signed in 2010. Just three of the
twelve helicopters ordered have been delivered so far while India has already
paid at least 40 per cent of the contract amount, according to knowledgeable persons,
including former IAF boss, Air Chief Marshal Fali Major.
There is no proof yet of any wrongdoing. New Delhi has acted
on the basis of an investigation report, filed by Italian prosecutors in Milan.
The report alleges payment of Euro 51 million (Rs 350 crore) by Finmeccanica to
secure the Indian contract. The case has not yet come to trial, though the
evidence has persuaded an Italian magistrate to allow the arrest of
Finmeccanica head, Giuseppe Orsi. The Italian judiciary has refused to release
the investigation report; we know of the case only from media leaks, which the
Italian authorities have not denied.
Until there is a conviction by the Italian judiciary, or
until the Central Bureau of Investigation (CBI) determines prima facie wrongdoing (Antony referred the case to the CBI only
last week) any move towards terminating the contract with AgustaWestland would
be legally untenable. On Saturday, the company flatly denied wrongdoing and said
that would reply accordingly to the show cause statement. On what legal basis
then would Antony be proceeding?
Might the CBI succeed in actually obtaining proof of
malfeasance, if it occurred? Going by its record in such cases, that seems
unlikely. The CBI has little expertise on defence procurement, and the agency has
repeatedly proved unable to obtain responses to letters rogatory, investigate
money trails and hawala networks, or
direct investigations towards the influential political figures that are often
the recipients of defence payoffs.
So what might AgustaWestland do if Antony unilaterally
cancelled the contract? If this were the United States --- where the Department
of Defense has the financial clout to ensure that companies like BAE Systems have
paid $400 million fines for apparent bribery --- AgustaWestland and its parent
company, Finmeccanica, might have quietly fallen in line in the interests of
future business. But India’s defence ministry does not have the weight to unilaterally
cancel such a large contract, even though Finmeccanica subsidiaries like Selex,
Wass, Oto Melara and MBDA do substantial business with our import-loving
military. In 2009, Selex Sistemi Integrati (a Finmeccanica subsidiary) dragged
the MoD to court in 2009, charging that the Tata group had been favoured over
Sistemi in a Rs 1,000 crore contract for modernization of air field
infrastructure (MAFI) in 30 IAF bases.
With the AW101 contract four times as large as the MAFI one,
AgustaWestland would almost certainly challenge any cancellation by dragging it
into arbitration. Since the Indian payment for the AW101 is currently ahead of
helicopter delivery, New Delhi would end up a major financial loser by freezing
the status quo. And the IAF would not want to be left with the unenviable task
of operating two types of VVIP helicopters; and sourcing lifetime spares and
overhaul for three AW101s from AgustaWestland.
Such embarrassments would continue for as long as India
remains a major buyer of defence equipment. The only way out of the MoD’s
downward spiral of purchases, scams, cancellations and blacklistings is the systematic
and relentless indigenization of defence equipment. But a militarily and
strategically illiterate MoD has, in the absence of any counter-narrative,
bought into the military’s fiction that if “modernization” were not pursued
(i.e. quick buys from overseas), national security interests would be severely threatened.
In fact, the most serious challenge to our military preparedness is not any
external threat, but the regrettable absence of home built defence systems and
our crippling reliance on rapacious overseas suppliers.
It is time to end all but the most pressing overseas
procurements. The defence ministry needs to form purpose-structured consortiums
of companies --- chosen from both public and private sectors --- and task them
to develop specific defence systems. For example, the elusive chimera of
importing artillery guns must be buried forever. Instead, the government should
task the DRDO’s Armament R&D Establishment (ARDE), Bharat Forge, Tata Power
and L&T to produce a working gun by 2017. The army must be goaded into
working with this coalition, and told its only option is an indigenous gun.
The Make category of the Defence Procurement Policy permits
such consortiums. Only two defence systems are currently being developed under
the Make procedure – a tactical communication system (TCS) and a future
infantry combat vehicle (FICV). There should be at least a hundred.
If operational preparedness suffers in the short or even
medium term, that price must be paid. This strategic decision must be backed by
cross-party political consensus, obtained with an agreement that the network of
industrial structures that will arise from serious indigenization will be
shared across ruling party and opposition constituencies. Ending this spiral of
shameful scandals through indigenization is essential for national pride; strategic
autonomy; and for building the defence capability that must backstop any bid
for great power.