CAG: how not to prepare for another Kargil - Broadsword by Ajai Shukla - Strategy. Economics. Defence.

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Monday 17 March 2008

CAG: how not to prepare for another Kargil

[Photo: The Denel NTW-20 Anti-Material Rifle, used by the Indian Army against Pakistani bunkers on the Line of Control. Denel was blacklisted by the Indian MoD after evidence emerged that the company had paid kickbacks to secure an Indian order for anti-material rifles. That led to Denel, then the frontrunner for the billion-dollar contract to supply India 155mm guns, being ruled out of the contest]

[Photo: The XM982 Excalibur 155mm round, which is the state of the art in 155mm ammunition. Jointly developed by Raytheon and BaE Systems Bofors, it is being operationally used in Iraq. It has a range of 57 kilometers and a terminal accuracy of less than 10 m.]

by Ajai Shukla
(Business Standard: 18th March 08)

In 2001, George Fernandes was in the cross hairs of the Comptroller and Auditor General (CAG) over the purchase of allegedly overpriced coffins for soldiers killed in battle. Seven years later the CAG has zeroed in on Fernandes’ pet project --- a new ordnance factory in his parliamentary constituency, Nalanda, to manufacture 155 mm ammunition for Bofors guns --- slamming it as a poorly planned project that was rushed through urgently, resulting in an “estimated cost overrun of Rs 628.87 crores and indefinite delays.”

Work on Ordnance Factory Nalanda has been stalled since June 2005, when India blacklisted the project’s technology partner, South African arms major, Denel (Pty) Limited, for corruption in a contract to supply India “bunker-busting” rifles.

The CAG Report No CA 4 of 2008 (Defence Services), which was tabled in parliament on Friday, is another blow to the project. The report finds that only 25% of the project work has been completed so far, though the project was to be completed in 2005. And that work consists only of residential accommodation, open-air theatres, shopping centres, a club, and cars, buses and air-conditioners. No construction has begun on the core technical buildings; the procurement of plant and machinery has still to take place.

The Nalanda Ordnance Factory brings together three controversial elements: defence minister, George Fernandes, who was the driving force behind the project; the Bofors 155mm gun, for which the factory would manufacture ammunition; and Denel, which ongoing investigations reveal, was already making payments as “sweeteners” in other arms contracts it was pursuing.

The CAG has no evidence of under-the-table payments in the Nalanda contract, for which Denel has already received Rs 66.14 crore rupees from the Ordnance Factory Board (OFB). However, the CAG report pointedly notes the Ministry of Defence’s (MoD’s) apparent “urgency to execute the project”. In February 1999, after obtaining a “go-ahead” sanction for the project, the MoD ordered the OFB to divert Rs 15 crores from other projects “to prepare a Detailed Project Report (DPR) urgently, by engaging consultants, if necessary, for approval of the Government.”

That initial haste quickly petered out into major delays and cost over-runs. Defence Minister George Fernandes found that the DPR costing was flawed and that the plant and machinery would cost Rs 847.94 crores, rather than the Rs 531.42 crores that the DPR catered for. So even as fresh financial sanctions were sought, almost Rs 300 crores worth of civil works (86% of the sanctioned amount) went ahead. George Fernandes, it now emerges, has gifted his constituency with an ordnance factory that has no shop floor, 693 vacant residential quarters, and a technological alliance with a black-listed foreign company.

Ironically, just three months after the initial sanctions for Ordnance Factory Nalanda, India found itself embroiled in conflict in Kargil and desperately short of 155 mm ammunition for the Bofors guns that would save the day for the army. It was the Israeli arms industry that bailed out the MoD, pumping in emergency supplies of 155 mm ammunition. Today, nine years later, India would again have to look to Israel if it were faced with another Kargil.

The fiasco in manufacturing 155 mm ammunition has a parallel, an equally dismaying story of delay in buying 155 mm guns to fire it with. The Field Artillery Rationalisation Plan, the army’s long-term blueprint, envisages 3600 artillery guns by 2025. Today, the army makes do with 410 Bofors guns, which it bought before the scandal halted further purchases in the 1980s. Endless trials since 2001 have failed to decide between an Israeli Soltam and a newer Bofors gun. Last year, fresh tenders were called for from dozens of vendors for the supply of 155 mm guns.

For now, both the gun and the ammunition hang in limbo. Bihar’s chief minister, Nitish Kumar, no friend of Fernandes, has pleaded that Bihar would benefit from the Nalanda project. The MoD seems to agree; even while the ban on Denel remains in place, the MoD has told the Lok Sabha, last August, that fresh approvals have been sought for the extra expenditure.

The CAG notes that the original project cost of Rs 941 crores has now been estimated at Rs 1570 crores, an escalation of 67%.


  1. The Gand (u) hi family does not like Fernanded, so there is a witch hunt.

  2. Fernandes has been the target of innumerable, obviously unsuccessful witch hunts for a long time now.

    Ajaiji, I couldn't understand what point, if any, you are trying to make with this piece.. is there a conclusion to draw over here or any opinion of yours?

    Second, there is a big confusion.. if denel was indeed banned, did we get the NTW-20s? If not, how did the Vidwansak project come about? Is that an OFB reverse engineered NTW? Need some clarification here.

  3. Sniperz,

    The piece is a straight report on the CAG audit findings in respect of Ordnance Factory, Nalanda. But if you want my views, here they are:

    1. The project to set up Ordnance Factory Nalanda in Fernandes' home constituency was a clear case of a politician doing his voters a favour, even though the logistics of a setting up a factory there are dubious.

    2. In typical Fernandes style, he rushed through the clearances, but failed to rush through what was most important: getting the factory up and running.

    3. Those misplaced priorities are not surprising from a defence minister who thought his job consisted of regular visits to Siachen, and moaning about how his bureaucrats were not taking any decisions. But that's India for you; a country where spineless leaders think it's good enough to complain, rather than fixing the problem.

    4. The defence services need modern artillery and a regular supply of ammunition far more urgently than a lot of other things that are being fast-tracked. But then prioritising effectively is not one of the core strengths of the MoD.

    5. It's a shame that we can't even prepare a Detailed Project Report (DPR) that estimates, even roughly, the correct cost of an ordnance factory.

    6. And finally... it's a shame that nobody in India will be called to account for such a major loss to the national exchequer, which could have been used to feed tens of thousands of people for a year... or to equip an entire infantry division in J&K with proper personal clothing... or radio equipment. At the end of the day, defence planning is all about opportunity costs.

    7. For more on the lack of accountability, read the edit piece that I wrote for the Business Standard this morning. I'm posting that separately.

  4. Fernandes is a big chor and this has proved it. Maybe his plan is to develop the area into commercial venture and milk money out of it.

    BTW, Shukla how did u get into Roy's inner-circle?

  5. The photograph of XM982 Excalibur 155mm round is shown, are you want to show that the technological advancement has gone to that level and we are unable to put a plant in India for producing the these rounds.

    Is Reathyon and BAe systems are ready to export this with TOT to india for their current Bofors 155mm howitzar cannons used in Kargil war.

  6. The photograph of XM982 Excalibur 155mm round is shown, are you want to show that the technological advancement has gone to that level and we are unable to put a plant in India for producing the these rounds.

    Is Reathyon and BAe systems are ready to export this with TOT to india for their current Bofors 155mm howitzar cannons used in Kargil war.

  7. Thanks for answering that Ajaiji. The piece seemed to miss something without a conclusion or your opinions.

    Could you clear up the doubts about the NTW-20, Denel and the Vidwansak if possible. TIA. Sniperz.


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