No thanks, you’re blacklisted!

by Ajai Shukla

Business Standard, 17th Nov 09

Over this last decade, the Ministry of Defence (MoD) has “blacklisted” so many foreign arms corporations that the military’s modernisation plan has virtually stalled. The MoD “blacklist” is not a formal document; an arms vendor is mostly embargoed unofficially, when senior bureaucrats agree that it is playing dirty.

The hit list reads like a Who’s Who of global weapons suppliers, including corporations with good records of delivering arms to India. Starting with Bofors in the late 1980s, the list grew to include Denel of South Africa; Israel Military Industries (IMI); Singapore Technologies Kinetic (STK); and now Thales of France. Earlier this year the world’s biggest defence contractor, Lockheed Martin, was on the blacklist. Now another global giant, BAE Systems, seems headed there after problems with setting up an assembly line in HAL Bangalore for the Hawk jet trainer.

It is hardly news that arms sales and corruption walk together. Arms vendors routinely bribe political leaders, bureaucrats and senior military officers, not just in India but worldwide. BAE Systems allegedly bribed Saudi Arabian royals with hundreds of millions of dollars in the infamous Al Yamamah contracts. Thales, credibly accused of bribing South African presidential hopeful, Jacob Zuma, is also being sued by Taiwan to recover US $590 million allegedly paid in kickbacks to win a deal for six warships. Most arms companies maintain multi-million dollar slush funds to ease the way for their giant deals.

But the Indian MoD is wholly wrong in behaving as if the problem is just one of predatory arms corporations. All those bribes are being paid to somebody; but no Indian MoD official is in jail for having accepted a bribe. Instead South Block’s vendor blacklists grow longer and longer.

These blacklists are now choking defence procurement. The Indian Army’s artillery firepower is grossly inadequate today because --- starting from the original Bofors scandal --- every time an artillery gun looks like it may be selected by the army, a cloud comes over its vendors. In recent years, the Bofors 155mm towed howitzer has been the standout candidate in repeated Indian trials. But the cloud over Bofors has never really lifted, even though it is now owned by the UK-headquartered BAE Systems.

In the procurement of tracked guns South African company, Denel, was to fit a gun turret on the Arjun tank chassis. That was scuttled in 2005 when Denel was unofficially blacklisted over bribery allegations, never proved, in another sale. That also blocked a crucial ammunition factory, being built in George Fernandes’ constituency, Nalanda, for which Denel was providing technology. In 2007, Israel Military Industries replaced Denel as technology partner; this June, after former Ordnance Factories Board (OFB) chairman, Sudipta Ghosh was arrested, IMI was prohibited as well. The Nalanda factory languishes.

Also ostracised after Ghosh’s arrest was Singapore Technologies Kinetic, whose Pegasus ultralight howitzer was the lone gun being evaluated for the army’s mountain divisions. Despite strong protests from the army (Business Standard, 18th July 09) that crucial procurement remains blocked. Two new mountain divisions for the Sino-Indian border are being starved of artillery.

“Today, anyone who wants to block an important Indian arms purchase has only to level an allegation against the vendor”, complains an Indian army officer furiously. “Anonymous letters, motivated charges, press reports, whatever… just kick-start an investigation and the MoD will kill the procurement. This is now routine business practice for rival arms dealers and, sooner or later, Pakistan and China will realise how easy it is to stop vital purchases from going through.”

Former OFB Chairman, Sudipta Ghosh, was granted bail in July after the CBI failed to file a charge sheet against him. But the seven arms companies (4 foreign and 3 Indian), which were blacklisted after his arrest, remain proscribed.

This situation, ironically, is rooted in Defence Minister AK Antony’s crusade against corruption. But his onslaught has entirely bypassed wrongdoing within his own ministry. And, increasingly, US companies are being let off the hook in situations where lesser mortals might have paid a heavier price. Lockheed Martin, discovered with classified information, was ordered to dispense with the services of its India CEO, Ambassador Douglas Hartwick (Business Standard, 13th July 09). But it remains in contention for the IAF’s lucrative medium fighter contract.

Similarly, even after the US Department of Justice revealed that the subsidiaries of two US companies, York Navy Systems and Textron, paid bribes to secure defence contracts in India, these companies face no blacklists or restrictions.

In a procurement environment characterised by paranoia, blacklists, and dwindling vendor options, India will inevitably drift towards sourcing most of its defence sales from the US, using the Foreign Military Sales (FMS) route. In this, New Delhi will provide Washington with its requirements; the Pentagon will nominate a vendor and negotiate a price; India will pay and and receive the equipment. This will be non-controversial in terms of corruption and kickbacks, but renew dependency on Washington in the crucial military arena.