BRIG HEMANT MAHAJAN NATIONAL SECURITY

Cleansing the corruption in MoD contracts & procurements requires political will

- Brig Hemant Mahajan (Rtd)

There has been abundant wisdom and vitriol floating in the media about COAS ever since the this letter issue, bribes, etc. The TV as usual has gone for him hammer and tongs, politicians making full use of the TV time to make inane political speeches, but all wanting a kill. How else does a Chief fight the bureaucracy? He can do it only by talking or giving interviews.

Many are talking about Gen Thimayya, and his resignation in 1959. What really did Timmy achieve by resigning? We lost 1962 war. The bureaucracy wins, thats all. We want a Chief who fights, stands up against babus/netas, and when he does it we castigate him? Every Chief writes his own letter to the PM /Raksha Mantri. Because it has to be on record that the current incumbent has apprised the Govt of the correct ground position. The PM/Raksha Mantri and their babus file the letter, send a reply that it is being looked at and return to politicking to stay politically and bureaucratically alive. These facts never come out into the open, our citizens never know. Now they know, because someone has leaked the letter. How has India become weaker by this leak? Does anyone think that the enemies dont know we are weak in many sectors?  The babu/neta never want this info in the Indian public domain, because he does not wish to remedy it.

Our 60% of modernization is wasted in corruption. Imagine, the Army budget paying 70 lakhs more margin for each Tatra, whats left for guns and butter? What the COAS has shown is that most of the inflated Defence Budget is going for margins and profits. If MoD kept quiet, is it not time for this one to say it? Amazing. Let’s not split hair about the methodologies.

Antony was aware of Tatra scam since ’09

Defence minister AK Antony was formally apprised of the Tatra trucks scam as early as 2009 but he turned a blind eye. This assumes significance because Antony recently told Parliament that he didn’t act when army chief General VK Singh told him he was offered a Rs.14 crore bribe to clear the purchase of a tranche of sub-standard Tatra trucks because he didn’t get a ‘written complaint’. If a ‘written complaint’ is what it takes to act, why didn’t Antony or his ministry react when Ghulam Nabi Azad, a senior Congress party colleague and then health minister, wrote to him on behalf of Sonia Gandhi requesting “necessary action” in the Tatra matter?

The defence ministry’s Department of Defence Production replied on October 22, 2009, stating that the matter (Tatra trucks deal) is under investigation. “I would like to inform you that the matter is being examined in this ministry… the examination may take some time.” It has been over two years since and no formal investigation followed that initial response.

It started in August 2009, when Dr. D. Hanumanthappa, president of the Karnataka wing of All India Federation of SC/ST/Backward Class and Minority Employees Welfare Association, wrote to Congress president Sonia Gandhi stating that VRS Natarajan (BEML’s CMD) placed an order worth Rs.6,000 crores for Tatra trucks from a UK agent and not from the Original Equipment Manufacturer (OEM) in violation of defence procurement guidelines.

The letter enclosed a detailed submission from Ashok SN, then assistant general manager of BEML’s ‘Trucks Division’, that clearly established how BEML, the nodal agency appointed by the government to procure trucks for the Indian army, violated defence procurement guidelines in the purchase of Tatra trucks. Azad then forwarded the letter to the defence ministry on behalf of the Congress president. Besides Antony, even law minister Veerappa Moily was apprised of the scam. Replying to a similar letter from Dr. Hanumanthappa dated September 2, 2009, Moily said: “I am taking up the matter with the ministry concerned.” He also failed to do so.

The Truck Purchase Scam

It should be clear, by now to everybody defending the government in the tussle between the Army Chief and the Minister that it was the General who upright and honest. And that he was made to pay the price for his honesty in trying to clean up the system.

Fighting corruption in the defence contract is not easy. It means war on different fronts. The politician, who is above you, and the moneybags of the arms mafia. Relations had not soured between the two, when the General reported the bribing incident to his Minister. Yet all that the Minister did was hold his forehead.

Defence purchase falls within his domain. Vectra of UK was not the producer of Tatra trucks but was a middleman. It was also not difficult to know that Tatra was a Czech company, the original manufacturer. It was also not difficult to know the price at which the trucks were being sold by Czeck company Tatra and the price paid by India.

That is why the General did not sign on the purchase order and wanted to purchase the trucks directly. He knew that India had been procuring the trucks at more than twice the price sold by the parent company. The scam was not in the bribe offered to the General but in the purchase price of the equipment. Could the DM or his advisers not understand this simple truth?

If a product was being bought at twice the price for which it was available in the open market then it does not require a genius to divine that bribes had been paid! Not only bribes but large bribes have been paid to lots of people because each one knows the quantum of profit being made by the middleman. How much is the bribe? Arithmetically 700 trucks × 70 crores = 490 crores. This possibly is the profit being made every year. This has been happening since 1986. So the real issue is not bribe of 14 crores but loot of tax payers money at the rate of 490 crores every year. However only a small percentage of the bribe (which is large in absolute terms - 14 crores in this case) was to be paid to the men in uniform, which the General refused.

The large chunk of bribe was to be paid to those who were not in uniform. And all these persons were within the jurisdiction of the Minister. Hence the matter was squarely within the domain of the Minister and it was a major omission on his part not to order investigation on defence purchase worth thousands of crores which were procured for twice the market price. The scam has been going on for a decade and hence the unity of the political parties demanding the resignation of the General Singh.

In the procurement of Tatra vehicles here are some simple points to think about -

The Army is the user. The MoD is the buyer. BEML, under the MoD is the seller. The BEML purchases from abroad at Rs. 40 Lakhs per vehicle. The MoD fixes the price of Rs. 1.10 Cr to sell to the army. How can the MoD take action on the issue raised by the COAS when the MoD itself is the user, buyer and seller. The army as a user has to initiate the procurement orders; beyond that they have no role that is why Rs 14 Cr is a very very cheap price. Some minister  will say with his arrogant smirk "zero loss" as technically the funds have moved from one head of account of MoD ie. the Army to BEML - both under MoD.

Criminal case filed against truck scamster Rishi

Ravinder Kumar Rishi, the chief scamster in the deal, was not only swindling the Indian government but also the Czech government.

Since 2005, Tatra has supplied so-called complete knock-down kits (CKD), containing all the components of haulage to the Indian state-owned firm BEML, which then assembles the vehicles in India. The transactions have been conducted through British-registered intermediary firm Vectra Limited, which, according to the charges, has frequently purchased the CKD kits at below production cost, thus causing losses to the Czech company running into millions of crores.

"The Tatra company sells kits to the British company Vectra Limited without a profit margin, and even at prices lower than the cost of manufacturing. All margins from this business, i.e. all profits from these transactions, go only to the accounts of the British company. Láska claims that between 2005 and 2010 Tatra lost around Kč 270 million in potential profit. The calculation is based on a profit margin of 10 percent per kit, which he says the management intentionally forfeited in order to sell the goods to Vectra Limited at a knock-down price*. In 2010, Tatra supplied 600 CKD kits to the Indian company BEML – which assembles the trucks and has large orders with the Indian army.

BEML, the nodal agency appointed by the government to procure trucks for the Indian Army, violated defence procurement guidelines by procuring Tatra trucks from an agent (Tatra Sipox) and not from the OEM, Tatra Czech. Had BEML bought Tatra trucks directly from the OEM, India would have paid much lower prices.

 Tatra Sipox’s balance sheet doesn’t reflect the sale. The company’s profit and loss account has not been more than Rs.3 crore over the last few years which is surprising since the Tatra orders from India have been worth thousands of crores. The mere reflection of Rs.3 crore in Tatra Sipox’s account confirms that the deal’s profits are going elsewhere. So does that mean Rishi’s Vectra Group is the real financial gainer?

Rishi has been “managing” Tatra deals and used to get Tatra orders cleared every year by bribing officials in the in MoD and BEML. His company is the real beneficiary of this Tatra deal and he might have wanted to push Gen. V.K. Singh to sign the deal clearing another tranche of trucks. Let us hope that CBI will be able to catch & prosecute the guilty.

White elephants eating into army budget

DGOF of the MoD biggest drain on the defence budget

The DGOF is another wing of the MoD which is the biggest drain on the defence budget. Despite Army's complaints the politico/bureaucratic nexus does not pay heed to it. It constructed a new factory to manufacture T72 tanks for Rs.1300 crores when all it needed was an economic extension to the existing Vijayanta tank factory. The juice is in such construction projects. Instead of either closing down Vehicle Factory, Jabalpur (VFJ) or diverting it to manufacture of vehicle spares they are now assembling Tata 2 ton trucks and making them more expensive for the army and possibly sacrificing quality. You may not believe it VFJ used to produce 0.66 trucks per worker while Tatas used to produce 9 trucks per worker.

Gen. V.K. Singh is a victim of the politico/bureaucratic combine which is not willing to let its gravy train be interfered with. With a budget running into thousands of crores, they supply sub-standard equipment to army at double the price. Disbanding Ordnance factories & procuring equipment from open market will save a lot of tax payer’s money.

 MoD Housekeeping budget

This is cleverly hidden into armed forces budget. It should be put under its own head so that the nation would understand the huge unproductive bureaucracy that we have created.

DRDO - A secret weapon of ISI

DRDO is a big drain on army budget. Any weapon system required to be bought by army from world market has to be cleared by DRDO. With big budget over the years we haven’t achieved any self sufficiency in any of its projects. Like Light Combat Aircraft (LCA), Arjun tank, submarines. Most projects are running for 30-40 years without any worthwhile results.

The question to be asked is this: If a criminal complaint was filed against the company and Ravinder Kumar Rishi by the Czech republic for merely causing a loss of 10% on profits foregone due to under invoicing a year back, then what action did the Defence Minister take against Vectra which as a middleman had supplied trucks at more than 100% the amount that Tatra sold in the open market? This scam was going on for the past many years. Rishi cheated Czechs by 10% but the Indians by more than 100%!

It is time that Shri. Anthony realizes his mistake. He is surrounded by corrupt people who are using his reputation as a shield. What is at stake is the loss of faith of the people in honest ministers.

Manmohan Singh and then Shri.Anthony! In the end, the General proved to the nation that even the most honest politician of our times is not good enough to prevent the huge corruption that infests defence deals. Is honesty about not taking a bribe? Can honesty have positive content? Like standing for integrity and truth. Like blowing the whistle on the dishonest. About standing up for what is right and sticking to it come what may?