India Caught in Another Defense Scam

Barely two weeks after a massive data leak of technical information on Scorpene submarines that India had bought from French contractor DCNS, the Narendra Modi government is embroiled in yet another major defense scandal. Prosecutors in Brazil and the US Justice Department are now probing the alleged payment of bribes by Brazilian aircraft manufacturer Embraer to wangle a US$208-million deal with India.

Embraer is suspected of having paid commissions to a UK-based defense agent in the deal for three Embraer-145 planes in 2008 as part of a Defense Research and Development Organization program to bolster the air force’s airborne early warning and control system on its planes. The planes supplied by Brazil have been fitted with indigenous radars for the Indian Air Force even though their delivery date is running way behind a scheduled April 2011.

It is suspected that a UK-based middleman greased palms in the top echelons of the Indian bureaucracy to influence the outcome of the deal even though middlemen are strictly prohibited from taking part in defense transactions in India. Brazil's top newspaper Folha de Sao Paulo reported that the possible bribery in the Indian deal was under the scanner of the US Justice Department, which has been investigating Embraer since 2010 after a contract with the Dominican Republic raised suspicion. The scope of the investigation has now been broadened to examine Embraer's dealings with eight other countries, including India.

Embraer has a sizeable presence in the Indian market and has supplied 35 percent of the executive jets in the country over the past five years. Its portfolio includes a total of 28 aircraft of different market segments, including 21 executive jets across six different models. A strong backlash from the scandal has led New Delhi to set a 15-day deadline for Embraer to submit a detailed report on the allegations. Defense minister Manohar Parrikar is closely monitoring the case and has asked the Central Bureau of Investigation to probe the matter with urgency.

India is no stranger to defense kickback scandals. Every other year, a new Pandora's Box is opened that reveals yet another murky defense deal triggering another nationwide furor. Some have toppled governments. The former Congress government led by the late Prime Minister Rajiv Gandhi was vanquished in the 1989 Lok Sabha elections in the wake of a multi-million dollar scam that involved kickbacks to purchase artillery from Sweden’s Bofors which was routed through a government-owned Singapore company.

The scandal shook up Indian politics and mainstreamed corruption as a key public issue. However, despite a probe the guilty remained unpunished. Soon after, German submarine maker HDW’s officials disclosed that they had coughed up a 7 percent commission to middlemen in a deal to supply submarines to the Indian Navy. The investigations wound up in 2012 with the CBI shutting the case after failing to detect any clinching evidence.

Lack of conviction in defense scams is hardly surprising considering the high stakes involved. Each foreign arms purchase deal brings with it whopping commissions for politicians as well as bureaucrats.

"This commission gets transferred directly into the bank accounts of these people in tax havens," a senior Home Ministry official told Asia Sentinel. "Look at any major scam – the Krishna Menon jeep scandal, the Bofors Scam, HDW Submarine Scam, Coffingate, Barrack Missile purchase and now Choppergate. Not one of our investigation agencies were equipped to track global financial transactions and punish the guilty. "

Another major reason the guilty go unpunished is because of the direct involvement of top politicians. Black money from arms deals is used to bankroll frequent elections. According to retired Brigadier Arun Bajpai, every third arms deal in India gets mired in corruption but despite this not a single bribe taker has been brought to book or has seen jail in the past seven decades since independence.

However, one good that has come out of the rash of defense procurement scandals is that it has predictably led to cries for greater indigenization of the military industrial complex despite sceptics arguing that excluding foreign weapons-makers from the exercise is no guarantee of a corruption-free procurement.

As analysts Sunil Dasgupta and Stephen P. Cohen argue in their seminal essay "How Not to Deal With Defense Corruption," the problem is not foreign suppliers, but a defense marketplace where domestic industry produces low-quality weapons at great cost, often late, which India’s armed services do not want..." and "...foreign suppliers act in a venal manner, it is because India’s defense marketplace is dysfunctional. Excluding foreign sellers only reduces the number of players and externalizes the problem; it does not stop corruption."

The problem is exacerbated, analysts say, by inadequate military expertise in the political and bureaucratic class. The Indian defense industry is largely state-owned and has its own problems of bias and entrenched corruption that result in cost and quality losses for the armed forces. The DRDO and the defense public sector units operate as a monopoly with attendant failures in innovation, cost, and accountability, Dasgupta and Cohen wrote.

In its latest review of transparency in defense procurement (2015), Transparency International studied 17 countries in the Asia Pacific region and placed India in 'D' category indicating high vulnerability to corruption. The report highlights grave threats to transparency in the sector due to low public accountability of defense institutions.

The report also cites instances where Indian military officials were found to be using land allocated to them to build shopping malls, cinema halls, etc., and in 2013, the Indian Army was found to be running an unauthorized golf course on the land it was allotted.

“India is the only democracy with no provisions for legislative oversight of its intelligence agencies and there is virtually no parliamentary scrutiny of "secret" spending (i.e. spending related to intelligence agencies and national security.),” the report said.

Experts acknowledge that Indian defense urgently needs an overhaul. However, despite the recommendations of several high-powered committees, the problem remains unaddressed by several governments. Worse, even though India spends a substantial 2.4 percent of its Gross Domestic Product on defense, it has the dubious distinction of being a heavy arms importer rather than a manufacturer.

To correct this imbalance, the current political dispensation has opened the defense sector to foreign manufacturers, allowing them to own up to 49 percent of companies hoping to replace outdated equipment and attract US$3-4 billion in investments. Further, Modi's `Make in India’ initiative aimed at indigenization and making India a global powerhouse for manufacturing, is a good first step.

But as policy analysts point out, it is also vital to have in place policies that discourage ongoing expensive arms procurements from abroad while facilitating the Indian private sector into the procurement cycle. Unfortunately, there is no political will visible as yet to reverse India’s appetite for foreign acquisitions nor check corruption which explains the current mess.

Neeta Lal is a Delhi-based journalist and editor. Twitter: Neetalal@neeta_com