Underhand Business with Open Arms

It’s not often that the endemic malfeasance in the lucrative world of arms deals spills out in the open

Mohan Guruswamy Delhi

This year, India has earmarked for defence a sum of over Rs 1.93 lakh crore – 1.9 per cent of the Gross Domestic Product (GDP), almost 13 per cent of the central government’s budget, and representing an increase of 17.63 per cent over the previous year’s defence expenditure. Capital expenditure accounts for 41.15 per cent of this sum – a juicy Rs 79,400 crore.

Moreover, a good part of the revenue expenditure is related to annual institutional bulk purchases on rations, clothing and so on. With over 15 lakh defence personnel, this big-ticket ‘revenue expenditure’ alone totes up to quite a huge sum each year.

From 2011 to 2016, India is expected to spend more than Rs 4,00,000 crore on capital expenditure. That is a lot of money by any standards, and almost 70 per cent of it is spent on imports. India’s import dependence is well known, so are its reasons – and that is unlikely to change soon. India’s pretensions to being a major power, despite this import dependence, have given cause for many sniggers in the international strategic community.

Not that India is incapable of indigenizing, but for that to happen it must be willing to make do with what is possible. And this means its armed forces must not insist on state-of-the-art weapons systems right away. That is the crux of this problem. Not infrequently, our top brass will simply say that without a particular weapons system the defence forces cannot guarantee the outcome of a conflict. Often, this argument is just a fig leaf to obscure other intentions.

Thus many programmes to develop indigenous main weapons like fighter aircraft and tanks have fallen by the wayside. The Light Combat Aircraft development is a case in instance. The IAF did everything possible to stall the project by changing requirements and delaying approvals at various stages. The Defence Research and Development Organization (DRDO) must also share a good part of the blame, for it has often over-promised, and then been unable to deliver on time, or at all.

Sometimes the DRDO just bluffs. When the Indian Navy asked the DRDO whether the Trishul surface-to-air missile to defend ships against sea-skimming missiles was tested and ready for induction, the answer was affirmative. The truth was that Trishul was a failure and its promises a sham. The navy had to then hastily acquire the Israeli Barak, for which a pound of flesh was carved out of its tight budget. It was for his role in this purchase that RK Jain, treasurer of the Samata Party headed by India’s then defence minister, George Fernandes, was arrested and charged by the CBI.

Indeed, the corruption that blights the domestic arms industry is well known. A former chairman of the Indian Ordnance Factories Board is currently being prosecuted for corruption. The chairman of Bharat Earth Movers Limited (BEML) has come under the CBI’s scanner as a fallout of the Tatra affair. Defence has traditionally been a sacred cow, and it is not often that the endemic malfeasance that envelops it spills out in the open.

Interestingly, the first major aircraft procurement by the Indian Air Force (IAF) was when it requested Hindustan Aeronautics Limited (HAL) to recondition the US-origin B-24 bombers left behind at Kanpur after Word War II. By 1948 the IAF had two squadrons of B-24 Liberator heavy bombers.

That was perhaps the first and last time defence procurement took place without a hint of scandal about it. In November 1948, India ordered the de Havilland Vampire jet fighter and, before the programme ended, 400 of them were imported or built in India. This was India’s first major weapons acquisition. VK Krishna Menon, India’s first high commissioner in London, engineered this deal. At that time India had UK sterling reserves and the cost of the Vampires was just deducted from it. In those days of early innocence, this deal escaped notice. Here was a relatively large arms purchase made on the quiet, and with no options examined.

However, the Menon hand did not remain obscured for long, for he was caught out trying to engineer another deal in 1948 – for jeeps. Menon entered into a contract with an English firm for the supply of vehicles for Rs 80 lakh – a huge sum those days. There was a big hullabaloo in Parliament, and a committee headed by the Speaker, Ananthasayanam Aiyangar, recommended an inquiry. This suggestion was never followed up, and quietly dropped when Menon was inducted into the cabinet in 1955.

Other major deals followed in quick succession, without any of the procedures that are standard now. India now wanted to diversify its sources of weapons, and with good reason. The IAF discovered that the British-made Vampires were supplied without firing pins and could not be used in Jammu and Kashmir. Apparently, we did not learn any lessons from this: in 1999 the government came to know that the first lot of Su-30MKI aircraft, based in Pune, did not have any hard-points for carrying weapons.

Following the Vampires, India ordered several hundred Ouragan and Mystere fighters from France, Fairchild C-119G Packet transporters from the US, Hawker Hunter fighter-bombers and English Electric Canberra bombers. Most of these were ad hoc purchases, and it was always speculated that some money changed hands to facilitate these deals.

Kantibhai Desai, son of Morarji Desai, was embroiled in a scandal to sell surplus Centurian tanks from India to South Africa, then an international pariah. The tanks were sold as scrap, the South Africans refurbished of standing UN sanctions

Nothing ever came out, but soon people started noticing a new class of people in New Delhi. These were the early jet-setters with homes in London and business interests in India – business interests mostly centred on highly placed bureaucrats, military officers and powerful politicians.

It was not long before the names of sons of some leading politicians also began to be heard in this connection. In the late 1960s, Kantibhai Desai, son of the late Morarji Desai, was embroiled in a scandal to sell surplus Centurion tanks from India to South Africa, then an international pariah. The tanks were sold as scrap, and the South Africans bought them and refurbished them in violation of standing UN sanctions.

Not all purchases took place because of deals behind them. In fact, the deals were far and few between. When they did take place, the considerations were very small. One Air Chief was quite happy with an SLR camera and some lens. In 1967, India decided to buy MiG-21 fighters from the Soviet Union, this simply because the UK and the US had shut all doors to us. The IAF wanted to buy the Lightning jet fighter from the UK, but was refused. So India turned to the Soviet Union, which agreed not only to sell the supersonic MiG-21, but also to transfer know-how to manufacture it in India.

The MiG-21 finally met its original adversary, the F-104 Starfighter, in air combat over the subcontinent during the December 1971 conflict, and in all four recorded cases of classic dogfights, the MiG-21s outclassed and out-fought the F-104s. The first aerial victory was on December 12, 1971, when MiG-21FLs of No 47 Squadron shot down a PAF F-104 over the Gulf of Kutch, followed by three more victories in quick succession on December 17, when MiG-21FLs of No 29 Squadron, escorting HF-24 Maruts, shot down intercepting F-104s near Uttarlai in the Rajasthan desert in gun-missile encounters, while a third F-104, on an intruding mission, was shot down by another MiG-21FL of No 29 Squadron. It was not a bad purchase, after all.

Long after all the Starfighters went to their graves, the MiG-21, though now being phased out, is still the mainstay of the IAF and many other air forces in the world. In all, almost 5,000 MiG-21s were built, making it the biggest jet fighter programme of the 20th century.

On a visit to Moscow in 1967, Indira Gandhi decided to accept Leonid Brezhnev’s offer of Su-7 ground attack fighters without even consulting the IAF, who would have no doubt formed a committee, and would have been still contemplating it for a long time. The aircraft was big, ungainly and even unconventional. After flying it, one veteran test pilot just kept uttering, “Why, why?” The plane became a butt of ridicule at bars in fighter bases. One story had it that it was initially designed as a tank, hence the solid structure! Another was that it was meant to be a midget submarine, hence the periscope in the rear cockpit of the trainer version!

But Indira Gandhi’s judgement prevailed and six squadrons of Su-7s were swiftly inducted by the end of 1968. This aircraft too fared exceptionally well in the 1971 war. Despite all the jokes made about it, the joke was on the Pakistanis who lost 69 tanks and 25 field guns to Su-7 ground attacks, which played a crucial role in halting the Pakistani offensive in its tracks. If the Hunters won Longewala, then the Su-7s won Chamb.

The 1970s also saw the advent of the likes of the Hinduja brothers, and soon arms deals became major sources of slush funds for buyers, sellers, middlemen and everyone else in between, all of whom went laughing all the way to the bank. The modus operandi of such agents was something like this. You went to the foreign principals and told them that nothing is bought in India without some grease money. You returned to India and told the powers-that-be that they could get the latest hardware approved for sale. And all other smaller players were suitably taken care of.

The Claridges Hotel in Delhi is to defence ministry sleaze what the Taj Mahal is to love. Suresh Nanda, most successful arms dealer and son of Admiral SM Nanda, a former Navy chief, owns Claridges'

The first major deal that went this way was the Anglo-French SEPECAT Jaguar deep penetration strike aircraft in 1978, when Jagjivan Ram was the defence minister. In 1979, the defence minister’s son, Suresh Kumar, was accosted in the car park of Parliament in a Mercedes-Benz car (a rarity those days) by a group of rival Janata Party activists, and in the melee a clutch of photographs of Suresh Kumar in compromising positions with a woman fell out of the glove compartment, and were soon published by Maneka Gandhi in her now defunct magazine, Surya. When the police investigated the matter, it was discovered that the car was registered in the name of one SP Chibber, a known arms wheeler-dealer who was reportedly the intermediary for the Anglo-French consortium which produced the Jaguar.

In 1980, Indira Gandhi came back to power, and her government threatened to investigate the Jaguar deal. It is suspected it took some more money to quieten things. But the new government soon got an opportunity to make a major aircraft deal of its own.

In December 1981, the Pakistan government signed a letter of agreement for the purchase of up to 40 F-16A/B (28 F-16A and 12 F-16B) fighters. The first aircraft were accepted at Fort Worth in October of 1982, and the first F-16, flown by Squadron Leader Shahid Javed (later Pakistan Air
Attache in New Delhi), landed in Pakistan at Sargodha Air Base on January 15, 1983.

The F-16 was the most modern fighter of that time, designed using the ideas of two well-known air strategists, Col Charles Boyd and Chuck Spinney. This aircraft was a light fighter with a high weight-to-power ratio, and touted as an invincible air superiority fighter. A loud and clamorous hue and cry was whipped up in India by its strategic community. We were told that this one acquisition threatened to upset the military balance against India. Right or wrong, this was the fear whipped up and, before long, India went out in search of a fighter to counter the F-16.

In May 1982 the IAF formed a new squadron, 223, and inducted the swing-wing MiG-23MF, considered at that time the most powerful single-engined fighter in the world. As other squadrons began converting to it, in all 150 MiG-23s were acquired but this was not deemed enough.

This was when the French Mirage-2000, made by Avions Marcel Dassault, made its appearance. It was designed as a competitor to the F-16, and had made an impressive debut at the Farnborough air show in 1978. In 1985, the Rajiv Gandhi government decided to induct 150 Mirage-2000 fighters into the IAF. The first 40 aircraft were to be imported from France, and the rest manufactured by HAL.

The second part of the programme, however, was not operationalized despite HAL having invested in the assembly line for Mirage 2000s. What happened is still a matter of speculation. Why did the government decide on the Mirage-2000 without considering other cheaper and possibly superior options like the Soviet MiG-29?

The MiG-29 was everything the Mirage-2000 was, and more. More powerful and versatile, it was designed to counter the US Air Force’s famed F-15 Eagle, a heavy multi-role fighter. It had entered service in the Soviet Union’s Air Force in 1983, and was India’s for the asking. But India was not asking. It was interested in the Mirage-2000 being advanced by the Hinduja brothers, among others.

The first major deal that went this way was the Anglo- French SEPECAT Jaguar in 1978, when Jagjivan Ram was defence minister. In 1979, his son Suresh Kumar, was accosted in the car park of Parliament in a Mercedes-Benz ( a rarity those days) by Janta Party activists, and in the melee a clutch of photographs in compromising positions with a woman fell out 

The next big deal pertained to Bofors about which so much has been written. The merits of the Bofors 155 mm howitzer are not in question, though ignorant people like Ram Jethmalani tried to paint it as a dud. But what became apparent was that irrespective of which howitzer was bought, Ottavio Quattrochi and the Hinduja brothers were cut into the deal.

The Hinduja influence to peddle went beyond parties. Atal Behari Vajpayee even wrote to then prime minister PV Narasimha Rao to exonerate them of all charges, and
Jethmalani defended them in court. Quite evidently, the Hindujas were even involved in the long-pending deal for Advanced Jet Trainers, BAE Systems’ Hawk.

It is well-known that money invariably changes hands discreetly in arms deals all over the world. But the difference between other countries and India is just this. If one is caught, the punishment abroad is swift and exemplary. In Japan, prime minister Tanaka Kakuei went to jail for the Lockheed scandal. In UK, John Aitken, a former defence minister, served a jail sentence, and Roland Dumas, a former foreign minister of France, was convicted for his role in the Frigate sale deal to Taiwan where the money was siphoned through ELF, a major oil company.

In the Tehelka case (following the Operation Westend sting, the army took action against Major-General PSK Choudhary and four serving officers. However, in most cases, the money-peddling middlemen, politicians and bureaucrats involved have got away without even a reprimand.

There is little doubt that military purchases of all kinds – whether fresh meat and vegetables for the troops, or tents in frontier areas, or winter gear in high-altitude deployments, or equipment of any kind – involves the movement of money under the table to facilitate the movement of files, and to obtain the required quality and performance okays. Very little is purchased without grease money speeding the process. As in the civil services, some military arms and departments, like the branches concerned with logistics, recruitment, the Military Engineer Service (MES), and defence estates are considered lucrative.

Because all defence purchases are garbed in the cloak of secrecy, very little gets out. Sometimes things come out into the open due to falling out among the brass or due to the pulls and tugs of competition unwilling to accept a rejection. It is widely known that the former GOC-in-C of the Army’s Northern Command, Lt-Gen HS Panag, was transferred out to the Central Command because he ordered an inquiry into purchases made by his predecessor, General Deepak Kapoor. Kapoor obviously wanted the lid to be kept on the matter, and Panag was out to land him in a soup.

The Sukna land scam matter, which resulted in the court-martial of two lieutenant-generals, has its antecedents in the intra-service rivalries that pitched the then army chief against an army commander, Lt-Gen VK Singh. The Tatra matter has spilled out in the open, partly due to the efforts of a competing manufacturer, Ural Motors.

Quite often, foreign intelligence services also make available information that could compromise a deal. It is well known that the Soviets were extremely unhappy about India opting to buy the Mirage-2000. Soon, New Delhi swirled with talk of a scam. In 1987, details of the Bofors and HDW submarine deals began to vitiate the mood against the government. Those in the know inferred that the second part of the Mirage-2000 deal was scuttled lest the Soviets slipped out some uncomfortable details.

Why have things become so murky? The problem begins because of the ministry of defence’s (MoD) patently stupid rules on agents and representatives acting on behalf of foreign or even Indian manufacturers. The MoD just doesn’t recognize their existence, when, basically, they are everywhere.

Less than a kilometre from South Block, where the defence minister, the three service chiefs and the defence secretary sit, is the tony Claridges Hotel. The Claridges Hotel in Delhi is to defence ministry sleaze what the Taj Mahal is to love. It is a supreme symbol of all that goes on within that ministry. Suresh Nanda, one of the capital’s most successful arms dealers and son of Admiral SM Nanda, a former Navy chief, owns the Claridges.

The not very commonly known pockets to get lined are those of the higher-ups in the seller country's government and companies. French presidents routinely got money from Col Muammar Gaddafi for weapons sold to him. many here believe that some money was paid to people close to Boris Yeltsin, for the Sukhoi deal 

When an international arms sale or purchase takes place, money changes several hands and passes into many pockets. One set of pockets, which everyone commonly acknowledges, is that of the main buyers. Another tranche goes to the single or multiple dealers: the in-between and go-between people, like the Choudhary brothers, the Hinduja brothers and such.

However, the not very commonly known pockets to get lined are those of the higher-ups in the seller country’s government and companies. French presidents routinely got money from Col Muammar Gaddafi for weapons sold to him. Many here in India believe that some money was paid to people close to the then Russian president, Boris Yeltsin, for the Sukhoi deal. The Sukhoi deal became very wing-heavy in India because it involved four regime changes, and each and every one took its bite off it.

British prime ministers too routinely get involved in arms sales, often to their own benefit. Margaret Thatcher’s son, Mark Thatcher, was involved in the sale of 220 Tornado aircraft to Saudi Arabia. Huge kickbacks were paid to several Saudi royals and Mark Thatcher himself received his share for his part in the deal. Recently, a report in the UK newspaper, The Guardian, said: “The MoD documents reveal that the price of each Tornado was inflated by 32 per cent, from £16.3m to £21.5m. It is common in arms deals for the prices of weapons to be raised so that commissions can be skimmed off the top. The £600m involved is the same amount that, it was alleged at the time in Arab publications, was exacted in secret commissions paid to Saudi royals and their circle of intermediaries in London and Riyadh, as the price of the deal.”

Interestingly enough, the Lockheed-Tanaka deal caused the US to pass some of the most stringent anti-corruption laws, whose implementation has seen several managers being sent to prison. Today, US arms companies function under the weight of some very strict ethical norms and compliances. Bribery is almost out. No professional manager will stick his head out and risk a jail term, not with so many potential whistle-blowers about. Whistle-blowing is an
honoured American tradition and the US law protects whistle-blowers. So who will buy American arms when it implies foregone commissions and earnings?

But the Americans still do quite well. Recently, President Barack Obama cajoled Prime Minister Manmohan Singh into buying Boeing’s giant C-17 Globemaster heavy-lift aircraft. India will buy 10 of these aircraft at a total cost of over $4 billion. This order materialized without the process that went into the multi-role combat aircraft (MRCA) deal. The question that remains unanswered is what did Obama tell Manmohan Singh?

Sometimes, these kinds of deals don’t go through despite top-level confabulations. When the IAF tried to buy Airbus tankers from France, the finance ministry rejected it outright, saying there was no reason why the IAF should not stick with the proven Russian Il-76 tankers it already had, and suggested that more of these could be bought, if required.

A new favourite arms-selling nation following the advent of the BJP-led NDA government has been Israel. Almost every deal with Israel raises questions about probity. Indians and Israelis obviously understand each other’s needs quite well. It is commonly believed that India routinely overpays for purchases from Israel. A case in point is the Heron UAV.

Sudhir Choudhary owns the sub-contractor manufacturing this UAV. In 2009, India entered into an agreement to develop medium-range surface-to-air missiles worth Rs 10,000 crore with Israel Aircraft Industries. But the curious part of the deal is the Rs 600 crore provided by the Israelis as “business charges”. This is, obviously, for the services provided by Sudhir Choudhary. Given this explanation, AK Antony was satisfied and did not bother to ask what these “business charges” were for!

As long as people like Antony don’t ask, the people will never know. And it will be business as usual, as always.

This story is from the print issue of Hardnews: MAY 2012