'Blacklisting firms will hit army's modernisation plans'
New Delhi: The world's largest arms importer is struggling to ramp up its defence procurement process. The recent spate of graft charges in military buys and the absence of a system to fix corrupt practices has slowed down India's efforts to modernise its armed forces, feel experts.
The year saw three major foreign defence firms banned on corruption charges. Germany's Rheinmetall Air Defence (RAD), Singapore Technologies Kinetics (STK) and Israeli Munition Industries (IMI) were blacklisted for 10 years.
While there is still confusion if the ban debars only one subsidiary or the entire group from defence dealings with India, the move, experts said, is keeping serious players away.
Experts feel indiscriminate blacklisting of foreign defence giants would limit the options before the Indian government for future acquisitions and instead of competitive bidding, the armed forces would be forced to go for government-to-government purchases, as seen in the case of Ultra Light Howitzers (ULH). Instead of blacklisting suppliers, a heavy penalty or a similar measure would be apt to fix the current mess, they said.
"Blacklisting of companies or cancellation of defence deals are certainly going to impact negatively on the on-going military modernisation process, which has been equipment-driven for some time and likely to be so in future. If the number of blacklisting or cancellation of deals increases in future, then in many instances, India would be hard-pressed to opt for government-to-government negotiations or adopt fast-track procedures for arms purchases, which would cast serious doubts on the defence ministry's abilities on managing competitive bidding," Deba R Mohanty, chairman and CEO, INDICIA Research & Advisory, told FE.
Sample the case of procurement of L-70 guns for the army. There are four or five firms that make these guns. The best gun, according to the army, is made by Rheinmetall Air Defence(RAD), Zurich—one of the companies blacklisted. So, it makes procurement difficult, said experts.
STK was participating in tenders for the supply of 155mm/52 calibre towed guns, 155mm/39 calibre ultralight Howitzer guns and close quarter carbines. Interestingly, it was the sole bidder for the ultralight Howitzers. Suspension of dealings with STK has adversely affected army's modernisation plans. India had to approach the US for emergent supply of M777 155MM Ultra Light Howitzers under the Foreign Military Sales (FMS) procedure, a government-to-government deal.
Facing a critical shortage of ammunition for army's fleet of T-90 and T-72 tanks after the blacklisting an Israeli firm, the defence ministry is now looking to procure these shells from Russia. The Israeli company was to construct three plants for producing bimodular charges at Nalanda Ordnance Factory in Bihar. Work on the factory to manufacture heavy calibre ammunition for the Bofors 155 mm Howitzers started in November 2001.
Crores were spent on setting up the main factory. The production, however, has not commenced to date. By blacklisting IMI of Israel and the Denel of South Africa in 2005, India has harmed its own interests, experts said. The Israeli firm was also the supplier of the FSAPDS (Fin Stabilised Armour Piercing Discarding Sabot) used by T-90 and T-72 tanks. Now, Russia has been approached for supplying these shells, sources said.
Experts pointed out that blacklisting of firms has also delayed many procurements. "It would be really difficult for the ministry to approve many of the contracts in a timely manner, resulting in delays or cancellation of contracts. This is certainly not an ideal situation. But, this happens primarily because India has largely been unable to strengthen its institutional mechanisms to deal with corrupt practices. Blacklisting seems an extreme example in the current context. A heavy penalty or a similar punishment could serve as a deterrent," Mohanty added.
‘Blacklisting firms will hit army’s modernisation plans’
