The Murky Business of India’s Defence Sector

The corrupt architecture of defence transactions in India calls for a complete systemic transformation.

The focus on nailing the corrupt and teaching them a lesson ends up paralysing the honest and ensures that the corrupt find more ingenious ways of making money.

(Photo: The Quint/ Liju Joseph)

I think I know a thing or two about corruption in defence deals. I also know how the CBI typically operates. While I have no inside knowledge of the Copter deal, my experience tells me that Air Marshal Tyagi is not only completely innocent but that he is being made a scapegoat to deflect attention from some very powerful political figures who would have benefitted from the deal had it gone through.

This is so typical of the CBI – hit the softest target available, glory in the publicity it gets, and then forget about the case until the next headline-grabbing opportunity arises to show how fearless they are.

This is what I had written three years ago when the scandal first broke out. It remains as valid today as it did then.

Too caught up to read the story? Listen to it instead.

I have been quietly amused by the pother over the Westland chopper scam, as though bribes were paid because the Government exercised its choice in favour of that company and someone ‘tweaked’ the requirements to limit the choice. Typically, this shows a complete lack of analytical understanding of corruption in defence.

Therefore, this case (like all other cases before it) will follow a predictable course:

Investigators will earn junkets to Rome, some honest reputations will be permanently damaged as dirty linen is washed, all major procurements will halt and procedures will be made even more tortuous and centralised.

Meanwhile, ‘rent seeking’, like water, will seek out newer outlets.

How we squander each opportunity for systemic reforms by opting for the short-term excitement of hunting for the corrupt and providing the hunters more game for their pleasure! We so easily overlook two cardinal factors.

Overlooking the Two Cardinal Factors in Defence Deals

• First, that in our defence procurements, most bribes are paid not for choosing X over Y but for simply proceeding with the procurement process and crossing the million hurdles placed on the track. The choice of the vendor is generally made on reasonably strong professional grounds and merit is almost never sacrificed, because it is well established that whoever is selected will pay.
• Second, in a system where responsibility for a decision is so widely dispersed and diffused, the big fish invariably escape and small fish are caught for all the wrong reasons. The CBI revels in such fishing exercises as it provides them multiple opportunities for extracting their own part of the ‘rent’.

The Two Red Herrings in Westland Case

First, that money was paid for ‘tweaking’ the requirements and much is being made of who ‘tweaked’ the requirements and when.

This does not sound right. Money is normally paid for restricting competition and tailoring specifications to favour a particular vendor, not for expanding it and allowing more vendors to compete.

While being given a chance to compete may command a price, it does not guarantee eventual success in the competition, particularly when Westland’s competitors may have had a distinct edge in terms of capacity to pay bribes.

The second red herring is to draw attention to the role played by Air Marshal Tyagi and some of his relatives.

Air Force at Best Played the Role of Technical Advisers

Quite apart from the fairly convincing denial offered by ‘Julie’ Tyagi and the former Air Chief, the fact is that this was not an Air Force-related procurement where the Air Chief could have had a prominent role.

This was a civilian requirement and the Air Force at best played the role of technical advisers to facilitate the SPG in being able to meet its requirements. In any procurement process, the determining role either in laying down specifications (GSQRs) or in tailoring processes to benefit favourites, is that of the buyer, not of those giving technical advice.

That any payments should be made to someone whose role was so peripheral does not stand to reason.

‘Why’ ‘Where and ‘How’ - Tracing the 3 Cracks in Defence Deals

I had written last year about the ‘why’, ‘where and ‘how’ of corruption in Defence procurements and drawn attention to three separate tracks of corruption.

The first being the track of demand estimation, demand vetting, demand projection and inter se priority determination; the second being the technical one – from framing the GSQRs, to preparing the engineering specifications, technical trials, user trials, and techno-commercial evaluations before the procurement process commences.

Both these tracks are the jealously guarded turf of the services that brook no interference from anyone outside.

Neither the processes nor the practices are ever audited or subjected to independent professional scrutiny. However, this case being an SPG requirement, both these tracks are irrelevant.

The focus should be on the third track (the actual procurement) where the onus shifts to the Ministry.

The Modus Operandi

In all transactions, there is a well-established hierarchy of rent collectors along the approval chain. This approval cycle is so complicated and lengthy that the opportunity for each functionary or facilitator to collect his share of the booty along the ‘nuisance value’ chain is maximised.

At no stage does anyone really need to circumvent or short circuit the procedure because following the procedure itself provides the opportunity. Up to a certain stage, all that is needed is to keep the process moving forward for the rent gets automatically paid at each stage of the transaction. These relatively (in relation to the final payouts) small payments are meant to keep the ball in play, not to score a goal.

The beneficiaries are generally the junior and middle-rung babus, the network of personal staff attached to officers dealing with procurements, sometimes the officers themselves, service representatives at the middle level who participate in the PNC (Price Negotiation Committee) meetings, etc. The main commodity on sale is information.

Things start getting hotter as the negotiations show signs of moving towards a conclusion. This is when the main political-level decision-maker needs to get closer to insider information through his trusted man/woman, as he needs to know in advance who is the most likely winner.

This is the time to summon the probable winner or his agent, the chief deal broker (normally one of three or four big-time deal fixers), the main political fixer (a contemporary Quattrocchi-like figure), legal and financial facilitators and work out the final details of the payoffs, sharing arrangements and routings.

There is a flurry of official briefing meetings so that the political-level decision-maker(s) can keep ahead of the vendors in the information game; secret huddles in private farmhouses, closed room meetings in the Executive Clubs of five star hotels, and a constant humming of mobile phones.

At this stage, all the vendors have to open something like a Letter of Credit so that whenever the final decision is taken, the payments get automatically credited to the designated accounts.

Occasionally, last-minute theatrics take place because of a falling out among the multiplicity of agents and the principal deal brokers and political fixers.

There is considerable flexing of muscles and if one of the major deal-brokers is antagonised, he can ensure (through selective media leaks or a sudden review of priorities) that the deal is either scuttled or pushed back sufficiently to enable him to regain control over it.

However, such instances are rare and normally it is in everyone’s interest to cross the final hurdle.

The deed done, the Dom Perignons and the Blue Labels are brought out and the magnificent fortresses in Chattarpur, Mehrauli or Sainik Farms come alive with thanksgiving parties and a liberal sprinkling of beautiful ladies from Uzbekistan or Georgia or Ukraine.

Deep-Rooted Corruption Calls for Systemic Reform

The point of the long narration is this:

Corruption is deeply embedded in the architecture of defence transactions and anything short of a complete transformation of structures, systems, processes will not make any difference.

There is no deal in which middlemen do not play a role and hefty commissions are not paid. Investigators needlessly focus on why a particular vendor was chosen or on procedural infirmities in the hope of catching the wrongdoer.

Corrupt deals will always be procedure perfect: ironically, if there are procedural flaws it is likely to be a rare, clean transaction.

The focus should shift to looking at the money trails, who paid whom and when, the specific role of the big-time deal fixers (on whom the Intelligence Bureau maintains huge files but who are brazenly present at every important social gathering in Delhi) and the political connections of these fixers.

Yet, in all the major investigations so far, the role of these big deal-brokers has never been properly investigated or exposed.

This is why the focus on nailing the corrupt and teaching them a lesson ends up only in paralysing the honest and ensures that the corrupt find more ingenious ways of making money. Only a complete system reform can change things. Naturally, that has few takers. Who would like to shut off such an important source of revenue for our system to survive?

(The piece has been written by Amitabh Pande. The author is a former IAS officer. This article first appeared as a Facebook post on the author’s timeline. The views expressed above are of the author’s alone and The Quint neither endorses nor is responsible for them.)