Defence deals: Keep them public

Scams were rampant during the 10-year United Progressive Alliance government. The latest one in the news is the AgustaWestland VVIP helicopter scam. I will not go into the well-publicised details which are being reported by the media like a cricket commentary, but will state that given past precedence, the bureaucracy at the ministry of defence will again stop processing all defence procurement cases for the next decade or so.

This will leave India and its military vulnerable to new threats and pressures from China and Pakistan. All this despite the fact that media reports have generally ignored the role of bureaucrats in the VVIP helicopter scam while laying the blame on two retired Air Force officers, a few politicians and some middlemen, though it is well known that all proposals, staff requirements or changes to staff requirements can only be approved by the ministry of defence, where they are cleared by the bureaucrats, who also conduct the price negotiations, before political clearance is accorded. Nonetheless, it is clear that the rot has set in all departments involved in acquisitions and a major transparent policy change is needed.

Perhaps, Prime Minister Narendra Modi should take a decision that all future major defence contracts should be only signed on government-to-government (G-to-G) basis and not with private companies.

Present examples of G-to-G contracts include, the current negotiations with Russia for S-400 surface-to-air missiles and fifth-generation fighter aircraft, and with the United States for P-8i maritime patrol aircraft, helicopters and artillery. This proposal of G-to-G contracts will, hopefully, rule out the dreaded middleman and thereby any possibility of scams, though there’s a possibility that G-to-G contracts may cost more than open tendering in the international market. Mr Modi also needs to ensure speedy investigation and trials in the VVIP helicopter scam, and not wait for Italy’s Supreme Court to give its final ruling by 2018-19.

The second issue is escalating prices of military hardware. Australia has recently announced that French shipbuilder DCNS will build 12 conventional submarines of 4,300 tonne each, in Adelaide, Australia, for the next 40 years, at a whopping $40 billion for the Australian Navy. This will make these submarines costlier than tactical nuclear submarines (SSNs) since cost of the transfer of technology (ToT), transfer of know-how, setting up infrastructure, training shipyard personnel, etc. is massive.

India is building six of the much smaller, less sophisticated 1,450 tonne French DCNS Scorpene subs at Mazgaon Docks Limited (Mumbai), costing about $31-2 billion, based on a contract signed in 2005. Media reports indicate that the first sub, INS Kalvari, has recently commenced sea trials and maybe inducted in December 2016. America, which has been building 7,800-tonne Virginia-class SSNs for the last decade, has recently announced that they will build 10 more Virginia class SSNs for only $17 billion. Not to be outdone, Pakistan signed a contract with China to buy four and build four Type 041 conventional submarines which are 4,000 tons each and expected to cost about $500 million each.

India learnt after selecting the Rafale MMRCA jet fighter as the “best” fourth generation fighter, after extensive flight trials in India, that it simply could not afford 126 of these jets at over $35 billion (18 to be purchased and balance 108 to be “made in India”). And so, in February last year, Mr Modi announced that India would buy only 36 in “fly away” condition. Here too the negotiatons are ongoing to reduce the cost of this fighter from over $300 million per piece (other American, Russian and Swedish fighters cost $80-100 million each). Pakistan, using its “friendship price route” with China, is jointly producing the Chinese-third generation JF-17 fighter jet at about $28 million each and already has 60 jets in service.

Perhaps India needs to look at a judicious “force mix” of high and low cost platforms for its military keeping its economic state in mind, or we will go bankrupt.

Thirdly, involving the private sector in manufacturing major defence equipment like transport aircraft, artillery, warships, submarines, etc. is important. The move makes sense since public sector units are already overloaded with orders. But here too some caution and due diligence is needed, as public sector units get government financial support when they overshoot their budget and time estimates. The media has been reporting almost daily on the Rs 9,000 crore owed by Vijay Mallya to banks (mostly public sector banks) for the ill-fated King Fisher Airlines, but readers may not remember the recent media report about Rs 50,000 crore “bad loans” given by banks to private industry, some of which are possibly in the fray for major defence contracts.

Participation of the private sector needs to encouraged, but the taxpayer must not be made to pay for their mistakes. Indeed, it’s time to make the public sector defence units also accountable and the best persons (including from private sector) should be selected based on merit to head defence PSUs.

Prime Minister Modi needs to crack the whip on PSUs delivering equipment on time and on budget. And hopefully, the Prime Minister will soon commission India’s first home-built nuclear submarine, INS Arihant (SSBN), which was publicly launched in June 2009, and as per various recent media reports, has completed sea trials. INS Arihant represents Independent India at its technological best, and is a shining example of real co-operation between the Indian Navy, the much-maligned DRDO, BARC, and the private sector. This pioneering project has taken many years, but hopefully newer nuclear subs will join at lesser intervals, and the experience can be a beacon for similar defence projects involving the military, DRDO, PSUs and the private sector.

The writer retired as Flag Officer Commanding-in-Chief of the Eastern Naval Command, Visakhapatnam