Middlemen in the arms bazaar

Procurement boards will help create a transparent and accountable regime

Jasjit Singh

There are indications in the media that the government is readying itself to reverse its earlier policy of ‘no middlemen’ in the procurement of weapons for defence forces. This comes in the wake of the establishment of a high-powered procurement board in accordance with the recommendations of the Group of Ministers set up following the Kargil Review. Conventional wisdom would have us believe that agents for sale and supply of arms are intrinsically negative to national interests. Past experience and scandals associated with weapons acquisitions are bound to raise concerns about this rethink. It is important, therefore to look at the implications of the institution of arms agents.

In the mid-1980s, the government decided to disallow arms agents and progressively tightened regulations so as to deal directly with prime manufacturers. Initially this had a limited impact but, by driving the arms trade management underground, it created complications later on. In those years nearly 80 per cent of our weapons and military equipment was purchased from the USSR. The Soviet Union, in any case, managed its arms sales to other countries through government departments. Under the circumstances, there was no scope for arms dealers in procurement from the Soviet Union. This didn’t necessarily mean that undue influence or extraneous factors did not play a role in at least some of the deals. Except for a few instances, we had not really been able to purchase weapons and equipment from the United States. The embargo on arms agents, therefore, applied only to European arms exporters.

The larger firms dealing with major high cost systems could afford to deal with the government directly. But the middle and smaller firms, which actually provide the bulk of equipment, spares and other supplies, could hardly afford to maintain offices in India. Due to repeated visits for discussions and demonstration of equipment during the procurement process, their overheads in direct dealings increased their investments tremendously. These were inevitably added to the purchase price. But after the disintegration of the Soviet Union a series of developments altered the earlier system, making it more complex.

Many defence industries, in part or whole, were located in the newly independent republics; and new and often non-governmental organisations and agents started to deal with weapons and equipment supplies. Meanwhile, the embargo on agents reduced transparency and led to unofficial and often unidentifiable operators getting into arms trade. In a way, what Tehelka brought out was these complexities. And the efforts of the Central Vigilance Commission by itself do not seem to have provided a solution to the problem of commissions and agents.

The history and experience of arms trade worldwide prove that there is no foolproof system of eliminating undesirable practices in the sale and purchase of weapons and equipment. Arms sales mostly involve large sums of money with very high margins of profit and expenses. The focus of attention is normally limited to the major weapon systems. But what is often forgotten is that much larger sums are involved in product support and the supply of spares, which continue for decades after the initial purchases. In the case of most suppliers, national economies are closely linked and even dependent on arms sales. No wonder, many heads of governments have lent their weight and influence to facilitate arms sale and purchase. Even the US president had to call the Saudi monarch to canvas for Boeing.

Eminent people across the globe have been charged with corruption in the procurement of military equipment. It may sound trite but in keeping the process uncorrupted, there is simply no alternative to integrity. And integrity is really tested only in the face of temptation.
It is common knowledge that trading in any commodity intrinsically includes the institution of commissions and agents who make their living by facilitating such transactions. Ideally, the process must be reasonable, mutually satisfying and ‘above board’. This is not easy in arms trade which is no different in terms of the basic need to facilitate sales. The problem arises because, unlike most commodities, there are no identifiable benchmarks against which the buyer can judge the price and the commission. This is because rarely do two manufacturers produce exactly the same commodity (in this case the weapon system). It is not possible to lay down tightly defined and universally accepted norms in arms transactions. Market forces therefore cannot apply a corrective. On the other hand, imperatives of national security require that the process of procurement is kept a closely guarded secret. So, the need for commercial confidentiality further makes it difficult to compare relative costs and performance. Under these circumstances transparency and accountability are critical to remove the mystique associated with the arms bazaar.

Transparency can be brought about in procedures although not in the more sensitive aspects. Accepting arms sales as legitimate business, with agents duly regulated in order to make their functioning accountable, can reduce the scope for manipulation.
Debarring appointment of agents and local representatives has not enhanced these. Insulating the defence establishment from commercial firms and their representatives also closes important avenues for access to information about various aspects of arms and their sales which would be useful not only in concluding contracts but also in the overall intelligence function. In the ultimate analysis it is impossible to eliminate the middleman in any commercial transaction. And arms sales are commercial transactions, their high value, profile and implications for national security notwithstanding.
Prudence lies in accepting this reality and in creating a transparent, responsible and accountable regime. Establishment of the procurement board and encouraging arms suppliers to appoint local representatives would go a long way in this process. Some form of regulatory mechanism with proper guidelines along with the promise of stringent punitive measures for violations would be necessary. The private corporate sector has extensive experience in the fundamentals of high value commercial deals. The government would do well to include experienced people from this sector on the procurement board. Success would lie in keeping the number of people involved in the arms acquisition process to the barest minimum, selecting those with an impeccable record of integrity and enhancing transparency to the maximum.

Jasjit Singh is Director of the Institute for Defence Studies and Analyses