No thanks, you’re blacklisted! - Broadsword by Ajai Shukla - Strategy. Economics. Defence.

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Saturday 14 November 2009

No thanks, you’re blacklisted!

by Ajai Shukla
Business Standard, 17th Nov 09

Over this last decade, the Ministry of Defence (MoD) has “blacklisted” so many foreign arms corporations that the military’s modernisation plan has virtually stalled. The MoD “blacklist” is not a formal document; an arms vendor is mostly embargoed unofficially, when senior bureaucrats agree that it is playing dirty.

The hit list reads like a Who’s Who of global weapons suppliers, including corporations with good records of delivering arms to India. Starting with Bofors in the late 1980s, the list grew to include Denel of South Africa; Israel Military Industries (IMI); Singapore Technologies Kinetic (STK); and now Thales of France. Earlier this year the world’s biggest defence contractor, Lockheed Martin, was on the blacklist. Now another global giant, BAE Systems, seems headed there after problems with setting up an assembly line in HAL Bangalore for the Hawk jet trainer.

It is hardly news that arms sales and corruption walk together. Arms vendors routinely bribe political leaders, bureaucrats and senior military officers, not just in India but worldwide. BAE Systems allegedly bribed Saudi Arabian royals with hundreds of millions of dollars in the infamous Al Yamamah contracts. Thales, credibly accused of bribing South African presidential hopeful, Jacob Zuma, is also being sued by Taiwan to recover US $590 million allegedly paid in kickbacks to win a deal for six warships. Most arms companies maintain multi-million dollar slush funds to ease the way for their giant deals.

But the Indian MoD is wholly wrong in behaving as if the problem is just one of predatory arms corporations. All those bribes are being paid to somebody; but no Indian MoD official is in jail for having accepted a bribe. Instead South Block’s vendor blacklists grow longer and longer.

These blacklists are now choking defence procurement. The Indian Army’s artillery firepower is grossly inadequate today because --- starting from the original Bofors scandal --- every time an artillery gun looks like it may be selected by the army, a cloud comes over its vendors. In recent years, the Bofors 155mm towed howitzer has been the standout candidate in repeated Indian trials. But the cloud over Bofors has never really lifted, even though it is now owned by the UK-headquartered BAE Systems.

In the procurement of tracked guns South African company, Denel, was to fit a gun turret on the Arjun tank chassis. That was scuttled in 2005 when Denel was unofficially blacklisted over bribery allegations, never proved, in another sale. That also blocked a crucial ammunition factory, being built in George Fernandes’ constituency, Nalanda, for which Denel was providing technology. In 2007, Israel Military Industries replaced Denel as technology partner; this June, after former Ordnance Factories Board (OFB) chairman, Sudipta Ghosh was arrested, IMI was prohibited as well. The Nalanda factory languishes.

Also ostracised after Ghosh’s arrest was Singapore Technologies Kinetic, whose Pegasus ultralight howitzer was the lone gun being evaluated for the army’s mountain divisions. Despite strong protests from the army (Business Standard, 18th July 09) that crucial procurement remains blocked. Two new mountain divisions for the Sino-Indian border are being starved of artillery.

“Today, anyone who wants to block an important Indian arms purchase has only to level an allegation against the vendor”, complains an Indian army officer furiously. “Anonymous letters, motivated charges, press reports, whatever… just kick-start an investigation and the MoD will kill the procurement. This is now routine business practice for rival arms dealers and, sooner or later, Pakistan and China will realise how easy it is to stop vital purchases from going through.”

Former OFB Chairman, Sudipta Ghosh, was granted bail in July after the CBI failed to file a charge sheet against him. But the seven arms companies (4 foreign and 3 Indian), which were blacklisted after his arrest, remain proscribed.

This situation, ironically, is rooted in Defence Minister AK Antony’s crusade against corruption. But his onslaught has entirely bypassed wrongdoing within his own ministry. And, increasingly, US companies are being let off the hook in situations where lesser mortals might have paid a heavier price. Lockheed Martin, discovered with classified information, was ordered to dispense with the services of its India CEO, Ambassador Douglas Hartwick (Business Standard, 13th July 09). But it remains in contention for the IAF’s lucrative medium fighter contract.

Similarly, even after the US Department of Justice revealed that the subsidiaries of two US companies, York Navy Systems and Textron, paid bribes to secure defence contracts in India, these companies face no blacklists or restrictions.

In a procurement environment characterised by paranoia, blacklists, and dwindling vendor options, India will inevitably drift towards sourcing most of its defence sales from the US, using the Foreign Military Sales (FMS) route. In this, New Delhi will provide Washington with its requirements; the Pentagon will nominate a vendor and negotiate a price; India will pay and and receive the equipment. This will be non-controversial in terms of corruption and kickbacks, but renew dependency on Washington in the crucial military arena.


  1. So the question is Who is India's enemy number one? The officials on the MoD. These guys need to be eliminated first (not litterally) and fresh, patriotic blood infused in this dept with a dozen or more qualified lawyers to prepare undefeatable contracts with foreign vendors. After that it will take another 2-3 years for a contract to get through and then another 2-3 years for the goods to arrive. In other words, this needs to be done NOW, Mr Antony's castations that he is corruption free is appreciable, but he must clean his house of all the corrupt officials and hand out exempalary punishments to same so that the next generation does not repeat the same mistake. This may be hard because all corrupt politicians back up each other and CBI can't do anything about it b'cos the govt in power will do anything to protect it's name.

  2. It's better to go for indigenous weapons systems rather than go for purchases from abroad. Even if we are purchasing something for the short term, a long term plan must be in place for indigenous development of the weapon.

  3. No US company despite of its alleged bribing system is blacklisted because,MOD and GOI love to lick the balls of US.

    Even though lockheed martin was found with highly classified documents related to MOD, the company wasnt short listed.Why?

    This clearly shows the discrimination of MOD.

    Wait a min.I now got the whole thing behind the show of American companies.We used to pay a lot more for the weapons and systems been purchased from an American company while other countries used to get the similar equipment for a fraction of cost.This means MOD itself is making a big scam and is taking bribes.

    If people do mistake we can complain to government.What can we do if the GOI itself is taking bribes?

  4. Dear Mr.Shukla,

    Does the U.S make any artillery pieces which could be in contention for the Indian Army procurement ?

  5. Sir,
    Perhaps you can shed light on this. Where does the lethargy in arms procurement lie within the MoD? Is it the senior bureaucracy or at the Political level? 15 years to procure a jet trainer was in my opinion anti-national and resulted in the unnecessary deaths of young pilots. Do these people really not feel a sense of urgency or concern about the lack of proper arms to defend our borders?


  6. If India is to get serious about bringing in honesty and integrity in government, then unfortunately, it HAS To do this. I applaud Anthony, if he is the one who has championed this cause.

    Having said that, the system should pursue improvements - make vendors sign integrity clauses, make vendor nations sign anti-corruption and deportation clauses, etc.

    We should break the backs of corrupt arms dealers and their accomplices in the MOD. Otherwise we will always be a corrupt nation.

    I for one, am very happy to see Bofors blacklisted. I think all arms sales from Sweden should be banned, for flagrantly refusing to release information to India.

    Do we have to have the best of everything? Wouldn't the second best gun be good enough in Kargil?

  7. Whatever is going on is really ridiculously outrageous. I sincerely think that the Govt. and beaurocrats are not at all bothered with the national security intrests. Why cannot the Govt. formulate a 'Defence procurement Board' with eminent people like retired high court/supreme court judges, retited force cheifs, retired/inoffice CAG, eminent lawyers to help frame contracts, and other such eminent people. Let them sit together and decide upon what to buy and from whoam to buy. There decision should be made final and binding.

  8. Good news, Indian Private sector companies can be given this opportunity to manufacture these arms. This can be a boon in disguise. We had enough of crappy quality foreign weapons, scandals, Delays & Contract beaches. lets use this as an opportunity for indignation of weapons procurement.

  9. What a nice use of pretext "Corruption" to eliminate the entire competition for uncle sam ! When in doubt, act innocent. Brilliant to destroy strategic relationships with nations built over a long time and make way for the big brother's entry.

  10. In times of universal deceit, telling the truth will be a revolutionary act - George Orwell

  11. This comment has been removed by the author.

  12. Guess it's time to embargo Shri Antony and his minions at the MoD.

  13. The problem is the process to blacklist a company seems so nebulous.

    All it takes is a allegation from a sore loser that the blacklist comes into place.

    And no single Russian companies on the list after so many years of doing business with them?

  14. Hi Ajai, Your prognosis in the last paragraph looks like an inevitability with each passing day. While fanboys of U.S. equipment will welcome the procurement arrangement you've mentioned in the last para, what scares me is a line which I heard from a Pakistani blogger sometime ago "Friendship with the U.S. is more about thorns than roses, we have been cut enough now it your turn. Enjoy".

  15. No doubt, Antony is an honorable man, rare in Indian politics. But the place where he is seated is where he needs to show leadership and pragmatism. His committed attitude to remain untainted (good) is coming in the way of defence preparedness of the country. This is not the time for that. There is no time to waste; too much time already has been wasted. We need to provide, our armed forces what they require to fight. That is the least our country should do to the army men who stand tall to sacrifice themselves courageously in defence of the nation. Sending them to a war without any weapons to match the adversary, would be the most appalling thing we as a Nation could do. We would not want another lost war; we would not want another inch of land lost. Mr. Antony’s attitude should be, I will go all the way to procure the best Artillery for my army within 1 ½ years even if, I am dubbed tainted in that process. Else, he should resign and be provided with Ministry for Mining.
    Well, BAE has been showing high handed behavior with all the money provided and playing by the loop hole of the texts mentioned in the contract. They need to mend on the “current contract” and play the tune of our line to sign any “further contract” with them.
    Lockheed Martin, did have classified MOD documents on their desk. As a Nation, we should have been outraged about this incident. This is one incident that requires investigation of outmost importance. God knows what all classified documents of our ministries and Research institutions are been placed on desks of US defence companies. This company has to explain very briefly how those documents got to their desk and why they resorted to it and also apologize for their actions to this Nation to stay a chance to sign any further contract.

  16. Denel is very capable and outsmarting company, thinking of the fact where it comes from. We could have rapid advancement in artillery, armour and anti-mine capabilities. It is hard to believe that a company from South Africa is creating ADVANCED MODULAR COMBAT VEHICLE (MCV), ROOIKAT 105 ARMOURED FIGHTING VEHICLE, Rooivalk – Attack Helipoter etc. Their artillery is un-doubtably world class. The technical collaboration with them would have been of immense added value to our defence capabilities and indigenous armed manufacturing.
    We have pardoned Israel and gone ahead with procurement of Barak 8 the reason provided was we are already neck deep with the Israelis. Well, that’s right, that is pragmatism. Antony did say, “If there is malpractice. They should not try to bribe our people. If they try, they will face the consequences. We will not be lenient. We will take strong action. We will ruthlessly cancel contracts in the future also as in the past. This is not a happy experience but we will be forced to take such action". Good, but he had to be lenient with Israelis there was no other way. Then, let’s pardon Denel, ST Kinetics they are lesser mortals who would allow us to add lot of value to our defence capabilities at lesser price. But we need not pardon BAE and Lockheed Martin.
    The war in Afghanistan has forced USA to create a lot of small arms system and weapons systems, the war in Iraq teached us about shock and awe but war in Afghanistan and Chechnya is teaching something else we need to closely monitor the war tactics and counter tactics both sides employ. We also need to learn about china’s defence capabilities. Surely, this must have been done by our military think thanks. Well, Ajai, can you make sure they did do that?
    Afghanistan has compelled America to develop or put in use modifications of several weapons systems for example MULE unmanned logistics vehicle, K-MAX – unmanned transport helicopter, XM-25 ’smart’ high-explosive weapon, etc. The developments especially have been in small arms and armouring capabilities.
    As everyone now understands, the urgency is to counter china’s defence capabilities. We will have to develop conventional, asymmetric unorthodox and strategic capabilities against them.
    The most urgent is to develop asymmetric unorthodox capabilities with very surprise element. It should be low cost and effective as Tata nano. It would require out of the box thinking. It may also require us to create completely new weapons systems, which could be simple but secrecy will have to be maintained.
    Ajai, Are you going to Russia any time soon?
    Do you have any information on Koalitsija-SV self-propelled twin-barrel howitzer other than which are already available on net?
    Have you come across the details of “200 special projects” which are signed or to be signed with Russia?
    Do you have any details when DRDO is coming up with the prototype of Arjun MK II?

  17. Any updates on HAL-LCH, HAL-IJT

  18. 1. Background: IIRC, the Indian army's artillery directorate had already planned to replace all of its existing artillery guns with 155mm howitzers as per a 2000 policy decision after the Kargil battle of 1999, when Swedish Bofors howitzers helped the army evict Muslim fundamentalists backed by Pakistan in the upper reaches of Jammu and Kashmir.

    2. The first Request for Proposal (RfP) dealt with the acquisition of 140 ultra-light howitzers (Note: The STK corruption allegations ironically have nothing to do with the ultra-light howitzer deal. The allegations arise from the proposal to supply SAR-21 MMS to Indian policemen after the OFB-developed AMOGH had failed during trials held by the Indian Ministry of Home Affairs. I believe STK is a victim of OFB's internal politics over the supply of the AMOGH).

    3. The second RfP dealt with 180 self-propelled guns.

    4. The biggest RfP was for the 155mm 52-calibre towed guns. Under it, India plans to buy 400 guns off-the-shelf and licensed production of another 1,100.

    5. BAE refuses to play by Indian MOD rules: In Sept 2008, it was reported that according to Julian Scopes, BAE Systems' new president of India operations, the trial requirements had impossibly broad ammunition compatibility requirements -- that the tender required that the gun fielded be capable of firing all available 155mm ammunition in the Indian Army's artillery inventory. Hence BAE had decided that it cannot participate in the tender under the current trial requirements demanded in the MOD's RfP.

    6. According to [URL=]Aviation Week[/URL], the incompetent Indian officialdom has managed to prevent the Indian army from conducting the trails that would lead to acquisition of 140 ultra-light howitzers under the first request for proposal (RfP). As a result, the Indian army's artillery modernization plans are put on hold until it is decided whether or when the RfP will be reissued. How incompetent? Let us set out the facts reported thus far:

    7. According to ST Kinetics, there was no official advisory from the Indian authority on the temporary suspension of business activities in relation to the Central Bureau of Investigation (CBI) investigation of former director-general of the Ordnance Factory Board (OFB).

    7.1 It was reported that:

    (i) Following the ban, "ST Kinetics has since approached the authority for clarifications and presented to the ministry a list of all our business activities in India. While awaiting a response from the ministry, we have offered all cooperation to assist with any investigation as appropriate and hope that the ministry will quickly review the matter and clear ST Kinetics' reputation," ST Kinetics spokesman Gaius Ho said.

    (ii) "We do not have any Joint Venture with OFB and have not signed any agreement with OFB," said Gaius Ho. ST Kinetics says OFB approached it when the Indian Ministry of Home Affairs was looking for a modern rifle, as the OFB's rifles had failed during internal trials. "ST Kinetics' SAR21 was presented for trials and evaluation. The discussion was for ST Kinetics to license its intellectual property to OFB if the MHA should decide to select the SAR21 and award a contract. There has been no decision to date," Ho explained.

    (iii) "We are perturbed by the change of events and feel strongly that we have not been fairly treated as a legitimate bidder who is committed to helping the Indian MoD with its modernization efforts," Ho added. "ST Kinetics is definitely a victim of the whole situation."

    7.2 The Indian defense ministry did not inform ST Kinetics of the postponement of the trials for the guns until June 5, around four days after the guns had been delivered in Mumbai.

  19. Well done Ajai,
    A team should be formed under qualified defence pers who are the actual users in MOD, but it is a sorry state of affairs civilians/politicians form the team and defence officials are placed under them with no-say regarding whom to place the actual purchase orders.
    The defence forces team should be assisted by qualified pers and the authority to purhase should be with defence forces only and not the politicians.

  20. “Today, anyone who wants to block an important Indian arms purchase has only to level an allegation against the vendor”, complains an Indian army officer furiously. “Anonymous letters, motivated charges, press reports, whatever… just kick-start an investigation and the MoD will kill the procurement. This is now routine business practice for rival arms dealers and, sooner or later, Pakistan and China will realise how easy it is to stop vital purchases from going through.”

    Ajai what u said is 100 % true , i really worry when the MoD will Realize this truth.


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