The move to restructure the existing regulations so as to permit middlemen in the processing of tenders for the procurement of defence equipment for the Indian armed forces is indeed a positive step that would be welcome by the global aerospace and defence industry.

The process of procurement of military hardware by the Ministry of Defence (MoD) directly from the global original equipment manufacturers (OEMs) operating in the open market has often been plagued by serious allegations of misdemeanour. This malaise has been attributed rightly or wrongly in large part to the involvement of “middlemen” or agents employed by the OEMs to facilitate deals and earn their commission. The general view is that not only hefty commissions are paid to the middlemen, these in turn resort to payment of huge sums as kickbacks to those who are in a position to influence the finalisation of contracts in favour of the company engaging the middlemen. All such payments regarded as off the record are substantial and ultimately inflate the cost of the deal.

Middlemen have been associated in defence procurement deals since independence and so have been scams beginning with the jeep scandal of 1948 to the infamous deal for Bofors guns for the Indian Army in the mid-1980s that became the “defining scandal in the history of defence procurement”. A fallout of the Bofors scam was that the Congressled coalition government of the day decided to prohibit employment of middlemen in contracts for defence equipment. An ‘integrity clause’ was introduced that was mandatory for all contracts for defence equipment to obviate allegations of corruption and introduce transparency. The integrity clause made it incumbent upon the supplier to guarantee that no individual or firm was employed to facilitate the deal. There was also a provision to cancel the contract if at any stage it were discovered that the declaration was flawed.

However, despite the change in the regulations governing the procurement of military hardware, involvement of middlemen continued unabated though in a surreptitious manner. Contenders who failed in their effort to secure a contract invariably resorted to subvert the process by filing formal or anonymous complaints about violation of the regulations on employment of middlemen. This emerged as a major impediment for defence procurement as A.K. Antony, the longest serving Minister of Defence under the UPA Government who being keen to safeguard his unblemished reputation for honesty and integrity, invariably took cognizance of the complaints and ordered investigations in response to the faintest allegations of wrongdoing. Based on such a course of action, a number of tenders were cancelled before the award of contract, some even in the last minute. Also, even major aerospace and defence companies of global repute were blacklisted and debarred from participating in future defence contracts in India.

Under the shadow of the Bofors scam, effort by the Indian Army to acquire new-generation artillery just could not materialise as for one reason or another, the related tender was cancelled five times. The urgently needed 197 light utility helicopters to replace the obsolescent Cheetah and Chetak helicopters inducted in the 1970s was cancelled twice and eventually scrapped. But the most frustrating experience the Indian Air Force (IAF) has gone through in the recent past was with the contract for 12 AgustaWestland AW-101 helicopters for VVIP travel. This contract was cancelled halfway through execution and as a result, the IAF was literally “left holding the baby” with three machines already delivered. Besides, substantial sums had been paid in advance to the vendor and Finmeccanica, the parent company, was in disrepute under the shadow of a scam. The party worst affected by the retaliatory action by the government was the Indian armed forces as their plans for modernisation remained bogged down the quagmire of allegations, investigations, blacklisting of firms and cancellation of contracts. In an effort to deal with the allegations of wrongdoing in the processing of tenders or in the execution of contracts, the MoD actually ended up “shooting itself in the foot”.

Wisdom seems to have finally dawned as the new government has finally understood the ground realities of the stifling environment associated with doing business with the government in India and the compulsions of global firms to employ middlemen in their pursuit of contracts. The move to restructure the existing regulations so as to permit middlemen in the processing of tenders for the procurement of defence equipment for the Indian armed forces is indeed a positive step that would be welcome by the global aerospace and defence industry.