Dealing with Misdemeanour

Blacklisting of defence firms would ultimately have a deleterious impact on the operational preparedness of the armed forces.

Issue: 09-2014By Air Marshal B.K. Pandey (Retd)Photo(s): By Illustration: Anoop Kamath

The policy on dealing with offences committed in defence procurement by the Ministry of Defence (MoD) remains unclear. This is hardly comforting for the stakeholders in view of the fact that India is expected to spend around $100 billion over the next five years on the procurement of military hardware. On August 26, 2014, the media carried a report that the MoD had banned the Italian defence and aerospace major Finmeccanica and its subsidiaries from participating in future military acquisition contracts by the Indian Government for its armed forces. De facto this amounts to “blacklisting” of the company even though this expression has been discreetly avoided. In any case, there does not appear to be adequate clarity, conviction, coherence, consistency or credibility in the announcement attributed to the government as this ban has not been made applicable to the ongoing contracts for the supply of military hardware as also of spares or upgrade of equipment held on the inventory of the armed forces. Besides, this is not in conformity with the advice given to the government by the Attorney General of India in the recent past that blacklisting of defence firms would ultimately have a deleterious impact on the operational preparedness of the armed forces. Besides, a blanket ban on Finmeccanica from participating in defence procurement contracts in the future is also not in line with the professed stand of the government on the issue of dealing with misdemeanour in defence procurement.

On August 23, 2014, Arun Jaitley, holding charge as the Minister of Defence, stated that his government would see how wrongdoers could be punished without blocking acquisitions and the flow of spares. He went on to say: “It is a serious challenge. We have to find a balance between two conflicting public interests. One is that contracts are meant to be abided with and not violated, even by our suppliers. The other is the larger public interest in respect of our national security and defence preparedness. We are trying to find an answer”. In the context of this statement from the Minister, the decision attributed to the government to ban Finmeccanica from future contracts therefore, clearly militates against what the Minister has proclaimed. When queried by the media, the spokesperson for the Ministry of Defence Sitanshu Kar said: “Finmeccanica had not been blacklisted.” In any case, excluding Finmeccanica from future contracts for any reason could have serious implications for the Indian armed forces as the Italian firm has been associated with military hardware currently on the inventory of the Indian armed forces who would continue to depend on the company for contracts related to product support in the future or for fresh inductions.

In the wake of investigations ordered by the Italian Government into allegations of wrongdoing in the Rs. 3,600-crore contract for 12 AW101 AgustaWestland helicopters meant for VVIP travel, the MoD initially placed the contract on hold. The three-engine AW101 helicopter has been designed, developed and manufactured by AgustaWestland, the Anglo-Italian subsidiary of Finmeccanica. The UPA Government in a somewhat hasty move thereafter without even waiting on the final word on the results of the investigations whether in Italy or in India, proceeded to cancel the contract that was halfway though. Three helicopters had already been delivered to the Indian Air Force (IAF) and substantial payment had already been made as advance. However, at that time, the UPA Government stopped short of blacklisting the company, a response that would normally have been expected from the then Minister of Defence A.K. Antony who had a strong inclination for such action, having already blacklisted a large number of firms in the preceding years of his tenure much to the detriment to national security.

So long as the Indian aerospace industry both in the public and private sectors as well as the Defence Research and Development Organisation are unable to meet with bulk of the requirements of the Indian armed forces, the nation will have no option but to continue to lean heavily on the global defence and aerospace industry for the modernisation of the armed forces and capability building to address the challenges to national security. It is about time that the new government takes a holistic view of this highly complex issue that is so critical to the well-being of the nation. Corruption is not confined to defence procurement alone; it appears to have pervaded all segments of the society prompting a cynic to opine that “honesty has been reduced to merely lack of opportunity”.

Unless the government enunciates a clear and effective policy on dealing with misdemeanour in defence procurement, meaningful modernisation of armed forces will continue to remain a distant dream!