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.

SP's MAI - - MILITARY VIEWPOINT - [ By Lt Gen­eral P.C. Ka­toch (Retd) ]

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.

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