With acceleration arms race in the subcontinent, bright future awaits the arms peddler

A pair of IAF Jaguars on a sortie: Increasingly sophisticated weaponry and an escalating arms billIt could be an ordinary four-room apartment of an upper-middle class person spending a peaceful retired life.The first door of the seemingly residential flat in a multi-storeyed residential complex at New Delhi's tree-lined Hailey Road is off limits to unfamiliar customers. And it has no commercial signboard either. But once inside, a flurry of business activity takes the unwary visitor off his guard. At one corner, the telex machine clatters away, as business quotations and queries come in from various parts of the world. Close by, a couple of leggy secretaries type out correspondence.Further up, seated majestically in the seclusion of his teak-panelled office room, Brij Mohan Gupta, 60, the tall and snowy-maned chief of Indian Avitronics runs his exclusive business of arms-peddling on behalf of over two dozen multinational corporations under a veil of secrecy and mystery.Gupta is not alone in one of the least advertised yet enormously rewarding enterprises of selling highly sophisticated hard ware to the nation's defence forces. According to official sources, there are 25 leading companies with 3,000 employees through whom defence equipment worth over Rs 500 crore a year has been bought during the last three years including substantial chunks of the controversial Rs 1,200 crore Jaguar deal. It is officially estimated that agents have procured orders worth over Rs 4,000 crore for their principals since the Sino-Indian war of 1962.Among the major purchases have been engines, avionics, tyres, navigational systems for 800 aircraft produced at HAL. Even the import content of the indigenously produced aircraft like Ajeel, Kiran, Maruti and Pushpak exceeds 40 per cent of the total cost of over Rs 1.25 crore for each aircraft.For example, HAL is believed to have produced 160 Maruti aircraft between 1965-77 and about 80 Ajeets since 1980 in which Orpheus engines manufactured by the now defunct Bristol company were used. The firm was represented in India by Greaves Cotton and Company. Besides, orders for buying equipment and spares for 1,000 tanks, 4,000 missiles and other defence installations like radar systems have also been placed with the principals represented by these companies.Lucrative: Quite predictably, the number of companies entering into this business during the last decade has increased because of burgeoning imports from the non-communist bloc. Though the Russians, from whom India has imported over half of its weapons system, allegedly pay commissions indirectly the western companies - over 5,000 of them are represented in India by the agents - have been more liberal in offering commissions and retainerships to their Indian representatives. Of the 25 well-known companies with a slice of the pie, half appeared on the scene only after 1969.Following India's rapid modernization in the post-1962 era, most major companies found it advantageous to set up branches in India or appoint an Indian agent with connections in the corridors of power. Most Indian defence agencies operate under a direct agency system through which they represent the foreign companies on retainer-ships or on a commission basis. They also provide back-up services for specific projects signed by them.Greaves Cotton's Thapar: Flourishing businessNaturally, most foreign companies have concentrated on hiring senior retired defence personnel who have powerful connections in the Defence Ministry and are invariably the first to get scent of an impending arms purchase. There are at present, three Lieutenant-Generals, two former naval-chiefs over a dozen brigadiers and wing comover a dozen brigadiers and wing commanders each and at least 50 other senior retired officers on the payroll of defence suppliers.For example, P.D. Chopra, a former managing director and Group Captain G.C. Kharas, ex-general manager both of HAL have joined a British concern Ferranti while an ex-HAL employee, Wing Commander S.R. Laxminarayan has taken up an assignment with OFEMA a French company. "There is nothing surprising about the large number of ex-service officers in the arms business," says a representative of a well-known Swiss arms manufacturer, "we know what the operational requirements are and have an intimate knowledge of actual combat conditions. We are, therefore, much better equipped to supply defence equipment than any civilian would be." Another defence agent, Major Shamsher Singh, who retired prematurely in 1965 and now runs - his own agency speaks in a similar vein. Says Singh: "Defence personnel can represent the sellers more efficiently and adequately because of their experience."Defence Personnel: Because of its highly specialised nature, the arms business naturally attracts former defence personnel. British Aerospace, which set up an elaborate office in Delhi's exclusive Golf Links colony in the wake of the Jaguar deal, has found it prudent to employ three retired air vice-marshals, while other major arms manufacturers have hedged their bets by hiring former defence ministry officials or employees of defence establishments like HAL. Understandably, these employees are able to use their contacts to get advance information of impending purchases. Naturally, they are well looked after with generous expense accounts and memberships in exclusive clubs like the Delhi Golf Club or the Gymkhana Club which are usually frequented by senior bureaucrats.One of the most successful armament middlemen is a close relative of a top HAL official while two others are the sons of a retired defence secretary and a former naval chief. Admits a senior HAL official: "If a person I have worked with for over a decade asks me for an appointment. I cannot refuse to see him. But this also gives him an initial advantage over his competitors."The need for high-level contacts has also attracted businessmen-politicians to take on defence agencies. Soft-drink tycoon Charanjit Singh represents western companies and Newspaper owner and Delhi Congress(I) Pradesh chief Vishwabandhu Gupta has a firm Bandhu Aerospace representing. Aerospace General of the US producing accessories for all kinds of aircraft.Ram: Jaguar rowWith commissions averaging 2.5 per cent in defence deals and the cutthroat competition among arms peddlers, dealers who lose out on a particular sale have no scruples about feeding information about alleged pay-offs to opposition MPs and journalists. Besides, the agency system has flourished because of the tiresome delays caused by the bureaucratic system in clearing an arms proposal.Says an official of a foreign arms company based in India: "It takes at least two years in India before you are invited to submit your product for trial. It is better to employ an Indian who can slog for us." Though defence officials deny that delays are deliberate, it is a well-known fact that a powerful nucleus consisting of bureaucrats, army officials and arms dealers, have succeeded in keeping decisions pending for years by raising unnecessary questions about rival proposals with the intention of sabotaging them.Premature leakage of the operational requirements of the army, navy and air force usually sets in motion a fierce competition among defence agents as each one of them tries to influence the decision in his favour or delay it by feeding adverse information on the competitor's product.There is a long list of defence contracts that have been stymied by the wheeling and dealing of arms agents. Examples: the Jaguar purchase, submarines for the Indian Navy, trainer aircraft for the army, production of Armed Light Helicopters (ALH), and the re-development project for the HF-24 and GTX engines. Decisions on all these deals have delayed or postponed because of external pressures.In response to growing criticism, the Defence Ministry has, albeit reluctantly, taken periodic steps to eliminate the influence of arms agents. The first such serious exercise was taken in December 1976 when a five-member committee consisting of G.C. Katoch, Joint Secretary (Finance), Vinay Vyas, Joint Secretary (Defence), P.B. Menon, Joint Secretary (Law) and-K.C. Sodhi, Deputy Secretary (Finance) was formed to deal with the problem. The terms of reference of the committee were:To examine how far the employment of agents by foreign companies can be completely eliminated.In cases where it is considered essential to appoint agents, to determine the desirable amount of commission.To suggest what kind of control the Government can exercise on the remuneration being paid to their agents.To suggest legislative and legal measures for the elimination of agents.And to consider the security aspects involved in the agents developing social contacts with senior officials of the defence forces.The committee after probing the agency system, came to the conclusion that arms agents were not working strictly on a commercial basis and were in fact not equipped to handle such jobs.Said the committee report: "Except in a few cases, the companies acting as agents are private limited companies owned by individuals. And very few of them are equipped to provide the after sales service or technical assistance and they generally tend to function as channels of communications."On the agents free access to the ministry the committee noted: "With their past associations, they are also able to have fairly easy access to senior officials, however undesirable it may prove to be."It further stated that "the committee understands that retired service officers are able to move about freely inside the security zone of the Defence Ministry and Services Headquarters on the production of their identity cards which they are allowed to retain after retirement. The committee recommends that identity cards should be withdrawn from those who have taken up jobs with the agents.Other recommendations of the committee were: No Indian agent should be involved while negotiating any import deal and conducting trials; and there should be a limit on the commission payable to those agents who can't be eliminated because of past contracts.It also recommended that the commission to be paid in Indian currency should not exceed 7.5 per cent for deals worth Rs five lakh, 5 per cent for Rs five to 10 lakh, 3 per cent for Rs 10 to 25 lakh and 2 per cent for deals exceeding Rs 25 lakh.Inaction: However, five years after its submission none of the important recommendations of the report, which is still a closely guarded secret, have been fully implemented. Perhaps the only exception being that C.P.N. Singh who was appointed minister of state for defence soon after Mrs Gandhi's return to power last year, banned the entry of retired defence officers representing various foreign companies from entering South Block.He even went to the extent of forcing the foreign suppliers to reduce the price of the equipment purchased by an amount equivalent to the commission paid to its Indian agents. Despite his orders, a file containing a proposal for the payment of five per cent commission to an agent for the purchase of Marconi's equipment was placed before him by junior defence officials though the deal was negotiated directly by the Defence Ministry officials.Instead of taking further action on the report, the Defence Ministry, it is alleged, has been forced to withdraw the ban on the entry of one particular arms dealer who was blacklisted by the ministry in 1977.Though the Defence Ministry mandarins refuse to supply information regarding the amount of commission paid by the Government to the various defence agents, unofficial sources say that these agents have been making over Rs 25 crore annually since 1976 in commissions from official agencies connected with defence imports.Concedes K.P.A. Menon, the bespectacled former defence secretary: "There was, in the past, an environment for strengthening the agency system but this has been abolished now except in some inescapable circumstances imposed by the past commitments."Despite denials from officials, these agents are ironically still active and quite often receive official patronage from some of the defence officials. Only last month, Indian agents were present during the trials for machine-guns and rifles. Others were sorting out details with ministry officials about various aviation projects in the pipeline.Some representatives of multinational corporations were also present at an official party last month hosted by a senior Indian Air Force officer. Says a defence agent: "Both the officials and the suppliers can't do without us. It will take months before these babus get to know about the latest development. They have to seek permission from four senior officials before sending a business query abroad through the telex machine. We get it for them within a few hours and we get paid for it."It is precisely because of the inherent disadvantages of a government organisation that the Defence Ministry has been indirectly encouraging the middlemen. For example, a director of the Defence Ministry while inviting quotations for equipment a few months ago wrote to the potential supplier: "You are requested to state if you have any business representatives in India and if so what the terms of representationcommission are. It may be noted that the commission, if any, will be payable in Indian rupees only."In addition, the majority of the Indian agents admit that they are associated with the negotiation and trials of defence equipment. Says Thapar, chairman of Greaves Cotton and Company: "My job is to study the products of my principals and see how they can be applied to Indian requirements. Besides, I develop a dialogue regarding the suitability of the equipment and ultimately bring about commercial negotiations." And with the recent acceleration in the seemingly unending arms race in the subcontinent, arms merchants peddling the best lethal weapons will need more agents in future to conduct their negotiations. In that respect, a bright business future awaits the arms peddler.Published By: AtMigration Published On: Nov 12, 2013 08:37 IST--- ENDS ---

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With acceleration arms race in the subcontinent, bright future awaits the arms peddler

With the recent acceleration in the seemingly unending arms race in the subcontinent, arms merchants peddling the best lethal weapons will need more agents in future to conduct their negotiations. In that respect, a bright business future awaits the arms peddler.

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