Scrapping Agusta chopper deal sets stage for next scam

Forced on the defensive by Italian prosecutors' revelations of bribery in the sale of 12 AgustaWestland helicopters to India, the Indian government is looking to save face by cancelling the Rs 3,528 crore deal by invoking what's called the "integrity pact". When it sold the helicopters, AgustaWestland expressly committed itself, as all defence suppliers are required to do with India, to not deploying middlemen to advance the deal. Now that Italian investigators have unearthed prima facie evidence of kickbacks paid to middlemen - in Europe and in India - and are proceeding with the prosecution in Italian courts, the contract seems doomed. India is pitching for the refund of all the payments made thus far - of the order of Rs 1,700 crore - but the process could take a while, particularly if AgustaWestland's parent company Finmeccanica stalls for time.

The UPA government is perhaps betting that cancellation of the tainted deal will enable it to signal that it is earnest about tackling corruption. But the fact of the matter is that details that are now acquiring amplification, because the Italian investigators have taken the matter to court and have filed the charge-sheet, have been in the public domain for over a year. The Indian media have put out some of the more incriminating details of illegal payoffs - to the Tyagi brothers, who are cousins of former Air Chief SP Tyagi - over the past year and more. But the Defence Ministry made no more than a feeble, insincere effort to investigate the charge of illegal payoffs. Now that the revelations are tumbling out from Italy, it has been forced to act.

The UPA government is hurtling from one scandal to another. AFP

The UPA government is hurtling from one scandal to another. AFP

A CBI team is going to Italy to take forward the investigations, which will presumably involve interrogation, if the Italian courts permit, of Finmeccanica corporate  leaders who have skeletons stashed away in their cupboards. But then, in a perverse way, the intimate knowledge that they have of the shadowy operations, and perhaps even the identities of the ultimate beneficiaries of the payoffs - some of whom may be political leaders in India - gives them a hold in their interactions with Indian investigators. To that extent, the credibility of the Indian investigation process is on firm test.

Sadly, the CBI's record on this front has not been too inspirational. As happened in the Bofors case, at some point in the investigation, the political leadership in India, which was directly implicated in the bribery scandal, was susceptible to the possibility of blackmail by the  Bofors manufacturer, since they had far more to lose from damaging revelations about the payoffs. The entire investigative effort at that time, by the CBI initially and by the Joint Parliamentary Committee (which was packed with ruling party members and supporters), was directed at ensuring that officials at Nobel Industries (the gun manufacturer) did not disclose any incriminating details that would embarrass Rajiv Gandhi.

Even in the AgustaWestland case, the allusion to "the family" in the preliminary inquiry report in Italy (in the context of the beneficiary of the payoffs) has set off speculation about who that might be.  Janata Party leader Subramanian Swamy has been making his views known on public forums, including on a CNN-IBN panel discussion on Thursday, and has injected an edgy political tone to the narrative.

But even if that is not the case, the cancellation of the AgustaWestland deal will only end up setting the stage for the next scam. That's because the deal was negotiated and finalised after seven years' negotiation, and today, because the government wasn't diligent enougn to keep out middlemen, all that time and effort has been reduced to nothing. For sure, the absence of helicopters to ferry VVIPs may not be appear to be as grave from a national security perspective as, for instance, the failure to set up a pipeline of arms and ammunition. Yet, as columnist Shekhar Gupta points out (here), the delay in their acquisition, for which the process must now be initiated all over again, means that "our prime minister, president and other such seriously threatened species will continue to fly decades-old Mi-17s that are so unprotected that one of them was brought down by the odd Naxalite bullet in Chhattisgarh just the other day."

And when India goes back to the international market to buy these helicopters, its desperation, given the time and effort is has lost and the compelling need to upgrade its fleet at the earliest, will lend it susceptible to arm-twisting by suppliers. If the Indian government  negotiates badly, as it has often been known to do, it will end up paying extraordinarily high costs. The scope for padding up of invoices and for arms dealers to get in on the act will  only be enhanced by India's desperation.

It's not just about the purchase of VVIP helicopters. The point, which I made here and which Gupta too makes persuasively, is that India's defence acquisition policy today is a disaster that is much bigger than any single bribery scandal. And even though the Defence Ministry under AK Antony has ostensibly banished middlemen and gone about "blacklisting" arms suppliers who violated the 'no-middlemen' provision, it has not been able to keep out the niddlemen.

As Gupta points out, for a country with the world's fourth largest armed force and which is the biggest arms importer, India "still has the mindset of a small-town retail consumer - someone who goes out every evening with a jhola, searching for the best bargains." It is hopelessly ill-equipped to negotiate the global arms market, which is operated by cartels "and where nothing comes with a maximum price sticker and which has no price discovery mechanism." Which is why there is always room for dalals to swing things - and make pots of money.

Which is why, in the absence of a market-savvy approach to arms acquisition, and given the failure to get the domestic private sector involved in defence manufacturing, India seems fated to hurtle from one scandal to another in defence procurements. By cancelling  the AgustaWestland deal, the UPA government is looking to claim the high moral ground. But unless it leverages its commercial clout, and is earnest about keeping out middlemen, it will merely be setting the stage for the next bribery scandal.

Updated Date: Feb 16, 2013 07:48 AM

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