Defense deals with Russia and France criticized by India's CAG

The Indian Defense Ministry has come under sharp criticism from the Comptroller and Auditor General (CAG) for financial irregularities in awarding of defense deals. The French Scorpene submarines and the second-hand Russian aircraft carrier Admiral Gorshkov were amongst the prominent deals slammed by the CAG’s report for 2008.

India is set to acquire six Scorpene submarines from France between 2012 and 2017. However, the CAG’s report says that “despite Indian Navy’s depleting force level, (the) Ministry took nine years to conclude a contract for the construction of six submarines. The delay led to increase in the project cost by Rs 2,838 crore. (approximately half a billion dollars) The contractual provisions resulted in undue financial advantage to the vendor of a minimum of Euro 58.20 million (Rs 349 crore) besides other unquantifiable benefits.”  The submarine designs were also accepted after computer simulations and instead of the required trials in Indian waters. The Indian Defense Ministry has been accused of giving large concessions in respect of warranty, performance bank guarantee, escalation, arbitration, liquidated damages, and agency commission to the vendor. The report says that the deal is “likely to adversely impact the operationally capability of the Navy.”

Another deal that came under criticism was the Gorshkov deal with Russia where India is trying to acquire the remodeled Russian aircraft carrier. The CAG’s report says that the deal was intended to fill the gap in aircraft carriers in the Indian Navy through a delivery in August 2008. However, not only has the vessel yet to be delivered, but the cost of acquisition has also doubled since it was sanctioned in 2004. According to the report the vessel will be delivered in 2012 at a cost of $ 1.82 billion, and will have a smaller life-span than if a new vessel were acquired. The Russians had revised the price three times since 2004 citing previously unestimated renovation costs and is currently asking $2.9 billion for the vessel. The Defense Ministry has said that though the amount being asked by the Russians is large it is trying to renegotiate the deal at a lower price. The Indian Navy Chief defended the deal and said that it is not possible to get an aircraft carrier for less than $2 billion.

Indo-Russian defense cooperation dates back to the Soviet era when India obtained MiGs, Sukhois, tanks, artillery guns, multi-barrel rocket systems, and many other infantry weapons and naval equipment. There was also significant technology transfer from the Soviet to India which helped to create India’s defense industrial base. The recently launched nuclear submarine was also developed with technical assistance from Russia. “In the last five years the major weapon systems acquired or contracted for include the Su-30 MKI multi-role fighters, IL-78 aircraft as platforms for the Indian AWACS, Mi-171V helicopters, Kilo-class submarines, frigates, Ka-31 AEW helicopters, aircraft carrier Admiral Gorshkov now renamed as INS Vikramaditya, MiG-29K carrier 8compatible fighters, T-90 tanks, AAMs, anti-tank and anti-ship missiles and various types of radars. The value of the projects under the defense cooperation programme till 2010 is $10 billion plus.” (Link) Defense cooperation with the French is comparatively new, though both countries are interested in strengthening their ties. A French company recently signed a preliminary deal with India to build six atomic reactors. It is said to be bidding to sell India its Rafale fighter planes and is considering a contract to renovate India’s Mirage combat planes. France also supports India’s demand for a permanent seat at the UN Security Council which is seen as an important step forward in Indo-French relations.

In terms of its total defense requirements, India seems to be exceedingly dependent on Russia for its weapons requirements. While strong defense relations are welcome, it is not in India’s interest to put too many eggs in one basket. It should diversify its defense procurements not only to reduce dependence and prevent Russia’s strategic stronghold, but also as a business strategy. This will allow for competitive biding and better deals.

India also needs to bring greater transparency to its defense procurement methods. As the CAG’s report points out, the Defense Ministry has been making too many financially irresponsible deals. Weapons deals have always been shrouded in secrecy and accusations of substandard and overpriced weaponry being purchased. Allegations of corruption and defense procurement scams have surfaced before. The Bofors scandal allegedly involved former Prime Minister Rajiv Gandhi (he was later cleared of all charges), while the coffin purchase scandal during the Kargil war implicated then Defense Minister George Fernandez. The MiG-21s came under a lot of criticism a few years ago and were called “flying coffins.”

Defense Minister A.K. Anthony recently told the Parliament that “in order to infuse greater transparency and to encourage involvement of indigenous industry in defense procurement and to keep pace with changing times, a review of Defense Procurement Policy (DPP) may be undertaken annually.” The government needs to seriously follow through on this promise with the larger need of securing India’s defenses. The government should ensure that the plans of spending more than $30 billion over the next five years on modernizing India’s weapons systems and the civilian nuclear energy program are not hampered by faulty negotiations and financial irregularities. The ambitious defense plan would be one of the largest in the world and India’s image as an international player could only be elevated by a transparent and corruption-free process of procurement. The fact that it would help renew confidence about the government’s defense capabilities amongst Indians should not be forgotten. The Congress Party also stands to gain electorally if it portrays itself as a clean party/government.

The CAG’s report can be used as an opportunity to clean up the messy defense procurement process and bring in a new and better way of doing business.