Defence procurement: India
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Purchases for Defence: India
Army chief warns against govt-to-govt deals with US
Josy Joseph
Times of India May 25, 2010
New Delhi: For the first time since India began bigticket defence purchases from the US through gover nment-to-government route, a senior member of the security establishment has red-flagged them, calling attention to the serious pitfalls of it.
In an unusual reflection of Army’s frustration with its past FMS (foreign military sales) purchases from the US, Army chief General V K Singh has written to defence minister A K Antony, cautioning the government about the troubles with FMS.
Over the past few years, the Indian defence establishment has been using the FMS programme of the US government to carry out major defence acquisitions.
In these non-tender purchases, the US government procures the equipment on behalf of the Indian government from its military companies, and takes a commission for the services rendered through Pentagon’s Defense Security Cooperation Agency (DSCA).
The purchase of AN/TPQ-37 firefinder weapon-locating radars for the Army in 2002 was the first major deal that India did with the US under FMS in several decades. Ever since, India has been buying several major defence systems regularly, and the total contract value of US systems bought under the FMS deal runs into several billion dollars.
The Army chief ’s letter of caution comes at a time when the two sides are in the final stages of finalizing two major FMS purchases — one for the Army and the other for the IAF. The Army is proposing to buy 145 ultra light howitzers worth about $647 million, mostly for deployment along the China border, while the IAF is planning to buy 10 C-17 transport aircraft at a cost of over $2.2 billion.
Singed by the troubles with past FMS contracts, the Army top brass is now discussing the possibility of hiring corporate lawyers well versed in international negotiations and contracts to come on board for scrutinizing the upcoming contract for howitzers, authoritative sources said. These lawyers would ensure that the past troubles are kept away, source said.
Gen Singh is believed to have pointed out to Antony Army’s trouble with maintenance of a dozen weaponlocating radars bought from the US firm Raytheon. At times, up to two-thirds of the radars have been in want of maintenance, Army sources said.
Gen Singh’s letter to Antony is an unusual step, and was “forced by the troubles we have with maintenance of the radar systems”, an Army source said.
India has been using the non-tender, FMS route to buy big-ticket defence items from the US since 2002, when the radars became the first items to be bought under the scheme in recent memory. Over the past eight years, the military has carried out a host of acquisitions through the route. Among them were the $2.21 billion purchase of eight Boeing P-8I maritime reconnaissance aircraft, $962 million deal for six C-130J Hercules transport aircraft for IAF and $88 million for USS Trenton and accompanying helicopters for the Navy.
The IAF is currently in the final stages of negotiations for purchase of $2.2 billion worth 10 C-17 aircraft and the Army is finalizing the purchase of howitzers.
Defence scams
From the archives of The Times of India
CBI has investigated several cases of ‘manipulation’ by arms dealers. Though the Bofors scandal is closed, the agency is investigating some arms procurement deals. Many of the probes are directly linked to the Tehelka tapes. A few of the cases are also linked to defence purchases that were mentioned in the tapes. Based on the conversations, the CBI is investigating at least three major defence deals, where arms dealers and officials are accused of manipulating the procurement processes. However, the probe has been going on at snail’s pace. In one case, the agency has closed the probe.
MAJOR CASES UPGRADE OF ARTILLERY GUNS
CBI filed the FIR in April, 2007, naming arms dealer Sudhir Choudhrie, Samata Party leader R K Jain and others
Charges | They influenced the MoD’s decision in the contract for upgrade of 130 mm field guns to 155 mm. The contract was awarded for $47,524,137 to Soltam Ltd, Israel
Status | The CBI closed the case in 2011, saying it couldn’t gather any evidence to substantiate its claims. The trial court ordered the ED to investigate the money trial to Choudhrie
BARAK MISSILE SCAM
CBI filed the FIR in October, 2006, naming Suresh Nanda, former defence minister George Fernandes, his Samata Party colleagues Jaya Jaitly and R K Jain and ex-Naval chief Admiral Sushil Kumar
Charges | Nanda allegedly paid bribes to Jaitly and Jain for ensuring the purchase of Barak Missiles from Israel for Rs 1,125 crore, overruling DRDO’s objections. Among the recipients of suspected remittance for the deal is Sudhir Choudhrie
Status | Probe going on for five years
ARMOURED RECOVERY VEHICLES
CBI filed an FIR in October, 2006, naming Suresh Nanda and R K Jain
Charges | Officials ignored the lowest technically suitable offer for purchase of 87 ARVs, and the open tender was scuttled. Later, it was given to a defence PSU that was procuring the vehicle from Unimpex, whose Indian agent was Nanda
Status | Investigations are going on
SUDIPTO GHOSH CASE
The CBI arrested former Ordnance Factory Board chairman Sudipto Ghosh and several middlemen in 2009. The CBI filed an FIR naming Ghosh and many defence firms
Charges | Ghosh was collecting kickbacks through middlemen from various defence firms for clearing contracts with the Ordnance Factory Board
Status | The CBI filed charges in the case a few months ago. MoD has blacklisted six defence firms, including Israel Military Industries, Rheinmetall and Singapore Technologies Kinetics
Penalties for defence deal graft
The 2016 norms
Blacklisted Cos Now Allowed To Go In Appeal
India will no longer impose blanket bans on armament companies suspected of corruption. In a significant change in policy , companies will be blacklisted only for one year at a time, instead of the existing norm of 10 years at a go, with fast-track investigations into the charges against them.
Striking a balance between the need to effectively punish corruption while ensuring that military modernisation does not get adversely impacted, the defence ministry approved a new liberalised blacklisting policy on Monday with graded punishments and fines commensurate with the kind of wrong-doing committed by arms companies.
The defence acquisitions council (DAC), chaired by defence minister Manohar Parrikar, approved the new guidelines for suspension or banning of business dealings with arms companies, which will be made public in the next few days.
The DAC also accorded initial approvals or “acceptance of necessity“ to modernisation projects worth Rs 82,117 crore.The approvals, which will eventually lead to actual contracts or deals being inked, range from the procurement of 83 Tejas Mark-1A fighters and 464 T-90 tanks to six additional regiments of the indigenous Pinaka multiple-launch rocket systems. But the clear takeaway was the new blacklisting policy .Under the earlier wholescale banning of arms companies, which especially became the norm under defence minister A K Antony , military modernisation projects often went for a complete toss and compromised operational readiness.
“Under the new policy , the decision to blacklist a company will not be an executive one. It will be done in a collegiate manner by a committee, which will also include the vice-chiefs of the Army , Navy and IAF,“ said a source. “The operational implications of blacklisting a company will be considered before a final decision is taken. Blacklisting will be for a specific equipment or service, without blanket bans,“ he added.
Under the new nuanced blacklisting norms, procurement of spares for platforms and equipment already purchased from a company under the scanner will be allowed.
Companies already blacklisted will now also be able to appeal to the government for a review based on merits of a case. Moreover, blacklisting will be done with the aim to complete investigations into the charges against a company within six months. “If the period of suspension for blacklisting has to be extended, it will have to be recorded in writing,“ said the source.
Four major global firms like Singapore Technologies Kinetics, Israeli Military Industries, Rheinmetall Air Defence, Zurich, and Corporation Defence, Russia, for instance, are blacklisted till 2022.
Liberalised Blacklisting Norms
Govt Unveils Liberalised Blacklisting Norms
Under its new liberalised blacklisting policy for arms companies, India will now be open to doing business even with a banned firm if there is no alternative available to its weapon system or equipment in the market.
This will be allowed, on the grounds of national security, operational military readiness and export obligations, after the vice-chief of the Service concerned (Army , IAF or Navy), the chief of the integrated defence staff or the additional secretary (defence production) signs a certificate to that effect and gets permission from the “competent authority“ (defence minister).
The new “guidelines for penalties in business dealings with entities“, finally made public on Monday after months of deliberations, make it clear that India will no longer impose blanket bans for 10 years on erring companies as was the norm under the previous UPA regime. The earlier wholescale bans, of course, often proved counter-productive by derailing military mod ernisation projects.
Instead, under the new graded system of fines and bans in order to strike a balance between probity and operational requirements, the period of suspension of business dealing with an arms company shall not or dinarily exceed one year pending a probe into the corruption allegations, as was first reported by TOI earlier.
With a review of the suspension order being undertaken within six months, the defence minister will decide if the subsequent period of suspension has to be extended for six months at a time.
“Banning of business dealings“, in turn, may be ordered only if a company accepts its misconduct, the CBI files a chargesheet againstit or a court or tribunal finds it guilty.
This ban period will not be less than five years if there is violation of the precontract integrity pact, the company is found resorting to corrupt practices, unfair means and illegal activities during any stage to bag a contract, or if national security considerations warrant the step.
But the ban period will not “ordinarily exceed three years“ for “non-performance or under-performance“ or any other ground required in “public interest“. The company with which business dealings are suspended or banned will, however, be allowed to take part in new tenders for spares, upgrades and maintenance for weapon systems supplied earlier.
The new policy holds the “order of suspensionbanning of business dealings with an entity may be extended to its allied firms“ only by a specific order of the defence minister.
“The entity with which business has been suspended or banned will also not be permitted to transact contracts under a different name or division, either through a transfer of assets to another legal entity,“ it says.
