India will formulate new rules for defence companies to work through agents or representatives, and will also calibrate its blacklisting of several suppliers to make sure its armed forces are equipped on time, defence minister Manohar Parikkar has said, indicating wide-ranging reforms in a sector that has remained mired in delays.
This will be the most significant policy change after a decade of stalled defence deals.
Parrikar's plan will require changes in the defence procurement policy. A draft of the new policy is ready. Parikkar said he expects it to be cleared by the Cabinet by February. “Representatives will be allowed but commission or percentage of profits for the deals will not be allowed,” he said.
Parrikar also said that the ministry is in favour of giving limited approval to dealing with banned firms. To start with, state-run Bharat Earth Movers Limited (BEML) has been allowed to supply spare parts for Indian Army's Tatra trucks as long as it does not deal with the British subsidiary of the company, which was banned by the previous government in 2012 after allegations of bribery by the then army chief, who is now a minister in the NDA government.
Under the previous government, signing of deals for equipment urgently needed by the armed forces was delayed due to a string of corruption allegations. Some companies were blacklisted, and procurement was massively delayed. In the 1980s, Rajiv Gandhi’s government collapsed over charges that Swedish gun maker Bofors AG paid bribes to supply Howitzer field guns to the Indian army. After that India did not purchase any guns until last year, when a deal was signed with BAE systems. For 20 years, the army did not have the Howitzers to combat even low-intensity attacks from across the border.
Deals slowed to a crawl under UPA's defence minister A.K. Antony, who stopped procurement at the whiff of corruption or allegations of irregularities, with no alternative suppliers in place. Parrikar says blacklisted firms might be allowed back for deals after evaluation. "Based on merit and necessity, one can think of lifting the ban to a reasonable level," he said. In the past, middlemen have been banned for their roles in corrupting defence deals. The most prominent of them was Ottavio Quattrocchi, who was an accused in the Bofors case and was subsequently acquitted by Indian courts after decades of federal investigation.
"This is absolutely a step in the right direction," said C. Uday Bhaskar, security and strategic analyst and distinguished fellow with the Delhi-based Society for Policy Studies. "After Bofors, we eliminated facilitators and called labelled them derogatorily as middlemen. If you want to buy a car, various agents try selling models and you choose one among many. If that is legitimate, so are facilitators for defence technologies, which are very complex. Not having them flies against the face of reality and globalization," he said in a phone interview with HuffPost India. "Not every facilitator is a bribe taker, and painting everyone with the same brush was absurd."
Bhaskar said that the Indian military's capabilities have suffered due to blacklisting almost every supplier. "After Bofors, we blacklisted that company. And in the Antony era in the last government, we blacklisted so many that now we are in a situation where can't make the equipment ourselves, nor can we get it from suppliers abroad." He said that Parrikar should go ahead with his plans to evaluate banned companies so that deals can be kickstarted again.
But the move is likely to be met with opposition.
Strategic affairs expert Brahma Chellaney said that the decision will make it difficult to make defence deals free of corruption. “If this happens, it will be difficult to clean up procurement processes that have been corrupt for many years,” said Chellaney, a professor of strategic studies at the Centre for Policy Research in New Delhi who has advised India’s government on security and foreign affairs. “I don’t know why there is a move to permit blacklisted firms and middlemen again.”
Parrikar said middlemen will need to be declared by companies, and their commissions cannot be tied to outcome of negotiations. "Lobbying is not seen as good even in America. This is not something we should follow over here," Chellaney said.
Bhaskar said that Parrikar's intent is right, and but the outcome will depend on how he goes about it. "Much of the outcome will depend on how the rules are implemented," said Bhaskar.