Should we entirely stop blacklisting arms vendors who lie, cheat and bribe? - Broadsword by Ajai Shukla - Strategy. Economics. Defence.

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Saturday 25 July 2015

Should we entirely stop blacklisting arms vendors who lie, cheat and bribe?

I'm writing a piece on this subject. If you have a view, please post it on my blog. Thanks!


  1. Should we entirely stop drinking? when we know it causes damage to liver and can lead to alcoholism? Tools of banning and blacklisting vendors should exist always and be used as a deterrent to prevent malpractices. The procurement policy needs to be such that in case the vendor has cheated and bribed the next immediate vendor must be given the contract. Everyone appreciates a bias free competition(MMRCA too bad something went wrong after selecting). Blacklisting vendor or improper verification of the vendors can lead to loss of confidence and affect operational capability in later stages, Due to non availability of spares and services. Recently Hyundai Rotem is to be blacklisted by DMRC because it hid the fact it was black listed by AAI from participating in any contacts. But right now after the supply of trains can one realistically blacklist Rotem from providing train and services to Delhi Metro?

    Same goes for Military procurement, Through scrutiny of firms need to be done before asking them to bid and integrity clauses should be worded carefully in case of breach. One cannot have the best equipment from indigenous sources every time and no vendor will share his know how with an indigenous company with out getting more than bargained for. Indigenous industries should be allowed to upgrade existing equipment irrespective of it being public/private, Something Israel has done. Israels F 16, 15 and apaches though are foreign platforms the avionics are Israeli , In case they ever blacklist boeing or Lockheed martin they will still be sufficient resources to maintain and upgrade/ overhaul. Iran has been able to overhaul and maintain F-14 despite the sanctions. India can take a lesson from the above countries and be in a position to substitute the services being provided by the foreign vendors.
    On the other hand stopping corruption 100% is impossible, But taking enough measures and actions to prevent it and not lose operational preparedness of the forces is possible.


  2. We should definitely continue to blacklist Vendors involved in unethical practices. Integrity is one of the most important virtue of Armed forces and any reported case of bribery in defence deal impacts the image of forces even if the involvement is of politicians or Babus in such dubious deals

  3. Ajai,

    The answer to your question is a function of its frame of reference. If the issue of bribery is approached as a moral hazard, we have a straight forward answer -- off with their heads. However, if we step back and ask why our system allows, nay almost incentivizes manipulation, we might be able to take a more realistic view. After all there are only as many defense vendors in the world and the eventual objective is not to paralyze procurement like St. Anthony did but to provide our armed forces the capability needed to perform tasks we expect of them. If we take this approach forward we can see that the rot sets in right at the beginning with unclear or impossible requirements that lead to subjective exceptions at later stages. Then comes the process itself, underpinned by the typical babu fetish for a L1 supplier without taking life cycle cost, vendor reputation, etc. Finally the overall distrust in the system that doesn't allow for reasonable application of mind to cater for changed circumstances or exercise of sensible discretionary authority when needed. Ideally the MoD should consider hiring experts from retailers like Walmart or FMCG companies to build a standardized modular procurement platform, something that is sorely lacking today.

    Now to answer your question, a better option would be severe fines backed by bank guarantees that are large enough to cause real pain to the vendor with limited purview of our judicial system should suffice. The key is early detection, swift punishment and limited appeals. Another useful lever would be a provision for reduction in fines if the erring vendor gives up all the details including the money trail of his Indian accomplices both within and outside the system. Genuine vendors will not fear this approach provided they trust the government to be fair and non-arbitrary. That is a big ask not just from MoD but from the edifice of governance in India - from the municipality to the central cabinet.

    In summary, as morally bankrupt as it sounds, Bofors is a damn good gun.

  4. Blacklisting vendors must be taken up on a case to case basis, Blanket bans will affect our preparedness. For example if an allegation of a bribe is made, CBI takes a decade to investigate, may not find proof and ultimately all these years the armed forces suffer. Take the case of Agusta, now that the italian courts have given it a clean chit where do we go ?
    Rather impose hefty fines or may be even suspend them from future contracts depending on the seriousness of the crime, but existing contracts must remain unaffected till a work around by MOD is found

  5. Would that include DRDO and HAL which keep giving unrealistic promises which amount to lying and wasting indian tax money?

  6. Part-2

    Most defence players in India are not paying some Indian money to bribe and sell inferior product, he is paying him to ensure he is able to show the them the path and warn them of any possible danger and advise what corrective measures to adopt. If you will pick-up the vehicles supplied by Mahindra to Ministry of Home Affairs for use by the officers, please confirm if they are same quality they are supplying to the Common citizen? If yes then why they are subject to maximum faults? It is a known fact that the Rakshak supplied by Mahindra had major AC issues / chassis cracking issues and most critical the failures of engines. The entire episode was closed to save the reputation of the company. Why were they not blacklisted for 10 years for such grave mistake - bigger than paying money to sell highend technology but to sell something which could risk the lives of soldiers?

    Most parts of OFB manufactured equipment are outsourced to Indian SMEs / MSMEs. If the Indian manufactures are so careful of zero corruption saga, then why OFB items fail miserably during combat? Why most OFB suppliers when inspected or evaluated by OEM's fail the litmus test?

    The answers are not so simple, the problem we face today is we want the public to see changes, the changes cannot happen overnight and by following knee-jerk approach. UPA used to do it by just dropping a program or blacklisting. The current government is simply turning all to make in India and ensuring their favorite few prosper.

    What we need is not "Make in India" ... we need "Change in India" !! Why we can't make simple (as it may sound in comparison to submarines) down jackets / trousers / Gore-tex suits / High Altitude Boots for our soliders and stop importing from Austria?

    The current leaders are OUR ONLY HOPE ! Only they have the VISION and the Insight enough to bring the "Correct Change" but they are following the wrong path :(
    Jai Hind !

  7. Lets first ask ourselves a question why do firms lie, cheat, mislead and misguide.
    The simple awnser is to get the deal.
    Probably the entire process of acquisitions needs to be changed. Can we not have a system like the one used by USA. Fair competition.
    India has long been banning firms. Has it helped us?

  8. Use US system of heavy fines for companies who break the law, thus taking away some or much of the profit. No action on rumors or allegations, complaining company must produce credible proof, else GOI becomes unwitting tool of disappointed companies. Also, as other readers point out, by current system of blacklisting we are cutting our nose to spite our face.

  9. Sir, the very issue is totally irrelevant. In fact, at the fag end what matters is a honest, integral and sincere system. And of course everybody involved is expected to be patriotic, nationalistic enough to vest a nation's trust in them. Arms vendors, in fact will be more happy with a transparent, fast and equal opportunity offered. Blacklisting companies will only further restrict our procurement avenues. Yes there should be severe punishment to those officials involved, capital penalty etc. In short, armed forces must get the best equipment available and whatever they desire, everything else is secondary. The very blacklisting game is a vicious cycle, which is exploited by rival vendors and also by our enemies through their intelligence agencies.

  10. No. But every recipient of bribery must be hanged, drawn and quartered.

    Squash the bribe takers, briber givers would cease to exist.

  11. Do we stop taking antibiotics and all other medicines, knowing fully well that they too have harmful side-effects? Do we stop using pesticides knowing fully well that they will be ultimately ingested, and cause problems over a longer term? We use it on a need basis, or turn a blind eye (specifically for pesticides).

    Banning, blacklisting etc is possible when one doesn't rely on the entity being banned. If your well being / survival depends on that entity, it's not a choice anymore. Perhaps, we should focus on being more self reliant.

  12. Corruption in arms vendors should be handled on a case to case basis.The root causes of corruption need to be addressed in the first place. The time for procurement must be shortened so that the lobbying time is reduced. The CVC must be provided online access to every case in progress. All officers handling procurement cases should be put through a detailed course so that there is uniformity in application of rules.

  13. DEFINITELY NOT. Haven't we noticed how Finmeccanica ban is hurting spares in other areas?

    I would rather do it this way

    1. Every deal should require winning bigger/vendor depositing/guaranteeing of 25% guaranty of the contract value to be held with an escrow account of some sort.
    2. If the vendor is found out later that he obtained the contract by lying, cheating or bribing (and proven in court) then an appropriate amount(predetermined for on each scenario) should be charged and taken out of the escrow (plus the legal fees)
    3. These deals need to be legally binding in India as well as the country where the parent company headquarters are located (and not Cayman Islands or Mauritius)


  14. Indians... time immemorial... can't stand up... those back stab... historical fact... we are cowards...

  15. If it is profitable to work with these cheats, why do you want to throw them away?

    Many in the region and the world work with these cheats, so why shouldn't we?

    Be cautious, and get maximum out of them---business as usual.

  16. Two Parts to my answer:

    Part One: No, We shouldn't. We don't have the luxury of the black listing weapon firms when the region is becoming increasingly unstable rather unpredictable and the arm forces are woefully short of critical ammo. What we do need is a think tank which can should compromise of Senior military officers, Economists and Statisticians who can provide a holistic framework of how should the Weapon manufacturers be approached, so that we draw maximum benefits both in terms of capability and savings.

    Part Two: Yes, We should Black list foreign firms. The only question is when? We have a pathetic or to say rather decrepit PSUs who have no virtue of accountability ingrained in them. Bringing fundamental changes in their working policies, buttressed by robust government policy, would help us expedite the languishing projects. Developing the R&D in the field of education, putting more emphasis on Applied Sciences and maybe, making Defence Labs and Armed forces more monetarily lucrative will help bring better talent in the field will help us in developing critical technology faster. We can then rely on the foreign firms to provide us with trivial and off the shelf available items and black list them in case of any misdoings.

  17. From Bofors to recent AgustaWestland case, it has been seen that proving bribery allegation is next to impossible.
    Reason is simple , the commission are asked by political party in power and are paid by companies as they need business to survive.
    It is known fact that doing business in India requires greasing palm of stakeholders in corridors of power.
    So why punish companies??
    Why not have stronger internal mechanism to ensure that commissions are not paid?
    Further bribery allegation are also made by rival companies to derail the process.
    Punish individuals not the companies should be the motto

  18. Blacklisting is good move because the company many not be worth enough to compete with the other competitors. When we have better options why to go for a second grade weapon.

  19. Black Listing Vendors is not a viable solution as explained by the Def Min in many Media interviews. Instead -

    a) For the individual engaging in malpractice, criminal charges must be levied upon investigation by CBI. " attempting to defraud the Government of India", " Bribing a GOI offical". The arrested must not be allowed to leave the country till the Court decides. That itself will be a problem.

    b) A defaulting firm may be listed internally, as a reference for being careful or to alert CBI, if the firm is dealing directly with GOI.

    c) Lastly a defaulting company must pay a financial cost. This cost must be significant and must much more than the bribe money offered. The fine fees must not be published until its awarded and it must not be a set fee else it will be factored in as risk by companies dealing in large amounts of money.

    The fines must not be kept lassiez faire, but must be diverted to the DRDO's for procuring lab equipment, else it will be embezzled it.


  20. Look where banning took us in terms of art guns. i guess there is enough and more such cases. it is a chicken and egg problem. The only way out is transparent policy driven engagements.

    everything to be done in time bound manner even punishment. Setup special courts for defence matters to be expedited and closed in a fixed and reasonable time frame.

  21. I´m not Indian, still my view is lies and chating is "normal" in Corporate World, but bribes are a much worse poison to the whole society. If India is to develop to a modern nation bibes must stop. Bribes and corruption hamper all progress, economic, trade, science, investments, political and social progress.


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