Allowing middlemen is a good move
It should be left to the company to decide how much commission it wants to pay the agent. The bottom line is: middlemen were always there who are now being legalised.
On the last day of last year (December 31, 2014) it was reported in media that a new government policy legalising middlemen in arms purchases – a source of massive controversies in the past – will be in place soon. Defence Minister Manohar Parrikar said, “The middlemen have to be declared and their commission cannot be linked to the outcome of negotiations.” Parrikar said that the Ministry of Defence (MoD) will announce a more liberalised export regime centred on Prime Minister Narendra Modi’s ‘Make in India’ vision, adding, “Private companies must be allowed to export defence equipment made in India, and for that rules will be changed.”
Significantly, the Defence Minister also stated that the Ministry of External Affairs would soon come out with a list of countries to which defence equipment made in India cannot be exported. Although currently private companies cannot export weapons, equipment or components without clearance from the government, the list being issued would obviously be applicable to joint ventures ( JVs) involving both foreign and Indian firms. The government has also been engaged in implementing nuanced blacklisting norms to replace the earlier indiscriminate ones. Middlemen or defence agents were banned for years after the multimillion-dollar scandal in the 1980s involving alleged kickbacks paid to politicians and officials in purchases. This move is obviously because of poor response to the regulatory role on agents that MoD had acquired for itself in conjunction stringent guidelines issued in year 2001 – that had proved counterproductive.
Interestingly, the government in 2001 had lifted the blanket ban on agents, which had been in force since 1987 after the infamous Bofors gun and HDW submarine scandals. But this bid to inject some transparency did not really work since the stringent norms laid down for agents were considered unrealistic, with the government even declaring it would determine the scale of commission to be paid to them. Consequently, almost no one came forward to be registered as an agent. Defence Minister Manohar Parrikar through his recent statement has now confirmed that the government is planning to legalise representatives of various foreign arms companies in the country, for speedy purchase of military hardware. He said, “We will allow company representatives. They will be middlemen. When I say middlemen it doesn’t mean commission agents or ‘dalals’. He will be a company representative in India. The company representative can work on a fee basis. He will be the information provider. Several times we require feedback and also someone who can get us information. There are some foreign companies which want to come to India...they can’t go on sending their people here.”
The Minister had earlier said middlemen can be permitted to charge expenses from parent companies for representing them in the country. He had also stated earlier that the gov- ernment should be in a position to have a very clear-cut policy by January 2015 and on blacklisting including a raft of measures to ensure transparency and at the same time speeding up such purchases to modernise the armed forces. This is not a new idea and has come up time and again, with many experts recommending its institutionalisation. The fact is that the absence of this led to high levels of corruption in arms purchases including in the MoD since agents still approached officials anyway. A dispassionate analysis would perhaps bring out that not one single arms deal has taken place without involvement of an agent directly or indirectly. In fact, hordes of shady middlemen including in garb of consultants lurked in the corridors of power to grease the official machinery and swing deals with hefty kickbacks to politicians, bureaucrats and military officers despite all the anti-graft provisions and integrity pacts in place – some shady agreements made in environment of five-star hotels.
For example take the mention of bribes given to politicians and bureaucrats in Haschke’s diary in connection with the Westland VVIP helicopter deal. Take the case of hefty bribes given to Indians in the Eurocopter deal, details of which are known to the Indian Intelligence Bureau. But then these are a drop in the ocean and the tentacles of the arms mafia has managed to put the lid on. India is the world’s largest arms importer, having spent ` 83,458 crore in just the last three years in acquiring weapons from the US, Russia, France, Israel and others. Overall, India has inked arms deals worth well over $60 billion since the 1999 Kargil conflict. But there are just a handful of legalised defence agents on the rolls of MoD.
The move to legalise agents of arms companies is not only timely but imperative because massive voids in military’s defence needs must be filled up speedily. With call of ‘Make in India’ and relaxations in FDI, many foreign companies are looking at India and JVs must have authorised agents to deal with the official machinery. Defence deals don’t originate only on government-to-government basis especially where private industry – therefore agents are essential. Legalised agents can assist foreign armament companies in replying to arms tenders, trial evaluation of systems, price negotiations, enhancing the quality of after-sales service and in resolving performance and warranty issues and legalised agents will cut down on corruption in defence procurements. Registration of a greater number of legalised agents under a new policy is certainly required. The armament companies should be free to choose anyone they want to act as their agents provided they are not blacklisted.
It should also be left to the company to decide how much commission it wants to pay the agent. The bottom line is: middlemen were always there who are now being legalised. What the government needs to focus is rooting out corruption in the defence sector and defence deals and kill the Goliath of the arms mafia.