MoD violates norms for its cash cow, BEL

by Ajai Shukla

Business Standard: 16th November 2007

Bharat Electronics Limited (BEL), the Ministry of Defence’s (MoD’s) most lucrative cash cow, continues to demonstrate how India’s eight Defence Public Sector Undertakings (DPSUs) can rake in the profits even while their prime customers, the military, complain bitterly.

Last week, BEL handed the MoD a dividend cheque of Rs 109.24 crores, on its highest net profit of Rs 718.16 crores for 2006-07. But going by the Indian Air Force (IAF) Deputy Chief, Air Marshall NAK Browne’s written complaint to BEL and the MoD (reported yesterday in the Business Standard), BEL’s highest ever turnover of Rs 3953 crores came less from producing quality products and more from using influence within the MoD to arm-twist the military into buying its radars, sonars, wireless equipment and electronics. 

Sources within the army, navy and air force cite several examples of how BEL’s influence works. A growing scandal is the unexplained violation of the MoD’s own norms in the procurement of some 30,000 night vision devices (NVDs) for an army that must scan the borders around the clock for militants sneaking in under cover of darkness. Instead of publishing a global tender for a contract that involves cutting-edge technology, the MoD gifted the contract to BEL, astonishingly asking the company to float the tenders for the contract. Instead of being one of the runners in an international race, BEL has been awarded the winners prize. 

All BEL must to do to set its cash registers ringing is to buy the high-tech image intensifier technology and select another company for the lower-end manufacture (outer casings etc) in India. This grossly violates Defence Procurement Procedure – 2006 (DPP-2006) but the MoD has turned a blind eye. This contract, worth over Rs 300 crores, will make BEL’s bottom line look even better next year, courtesy captive military customers who are not given the choice to buy cheaper elsewhere.

The MoD takes cover behind the principle of indigenisation, even though the critical technology has been purchased abroad and will, in BEL’s hands, become quickly outdated. This is exactly what has happened before. In the late 1990s, BEL went through the same process, buying NVD technology from Dutch firm, Delft, and making handsome profits by supplying the products to the army. A few years later, that earlier technology has evidently not been absorbed by BEL; the next generation of night vision technology is being bought afresh, and BEL is making profits all over again.

There is clear conflict of interest here. BEL’s board of directors features senior officials from the MoD, who take key decisions on awarding these contracts. An even more brazen conflict of interest occurs in the way senior military officers, who are in a position to block DPSU or DRDO contracts are hired, post-retirement, as consultants by these organisations. 

A case in point is the Artillery Command Control Communication Systems (ACCCS), which is a high-tech computerised system for bringing down quick and accurate fire onto a target from artillery weapons like the Bofors gun. As is now standard practice, a partnership between BEL and DRDO was given the contract, without any tendering. A senior officer, Lt Gen S Pattabhiraman, was closely associated with the project, first as Director General Information Systems, then as the Western Army Commander, and finally as Vice Chief of the Army Staff. As soon as Lt Gen Pattabhiraman retired, he was appointed a consultant with the DRDO, with the full knowledge of the MoD.

The ACCCS project cannot even claim to be going well, having already overshot its budget by Rs 300 crores. Running years behind schedule, and under pressure to deliver, BEL-DRDO threw indigenisation overboard and bought 900 tactical computers (the centre-piece of the ACCCS) from Israeli company, ELBIT, for Rs 110 crores. These computers are based on the outdated Pentium-3 processor. This is a design so outdated that it is no longer available in the market, but it will underpin one of the army’s key systems for the next 25 years.

DPP-2006, with all its emphasis on global competitive bidding, has failed to dent BEL’s clout. The MoD has awarded, without competitive bidding, a Rs 40 crore contract to BEL-DRDO for developing a crucial air defence system (ADC&R), the components of which are freely available off-the-shelf. BEL’s bottom line looks set to grow further.