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Defending the middleman

Some time ago, the Central Vigilance Commissioner was requested by the defence ministry to go into all the defence deals concluded since 1987 to see if there were any irregularities in them. The CVC has recently submitted an interim report to the Ministry of Defence. Although the report is marked secret, one of the recommendations is believed to pertain to the question of middlemen in defence deals.

It will be recalled that following the Bofors scandal the government had imposed a blanket ban on the use of middlemen and agents in defence deals. The CVC has now recommended a rethink on this order as it has been "a complete failure." The Commission has thus officially reiterated what every junior officer in the armed forces involved in the purchase of stores, weapons and equipment has known all along. The middleman is a fact of life. Ever since some man has had something to sell and another man has wanted to buy it, a middleman has helped bring about a deal. Whether he is called a middleman, an agent, a retailer or even a pimp, he has performed the basic task of bringing the seller and the customer together, smoothing the way for an easy and painless transaction.

Middlemen will show you ten flats when you are in the market for a residence, let you drive the latest model when you want to buy a car, tell you the intricacies of various policies when you want to go for life insurance and get you the most coveted role when you enter the movies. The job of a good middleman does not, of course, stop when he concludes a deal and gets his commission. A respected agent, as he is better known, goes further. He will service your car, TV or air conditioner, stock spare parts and help you sell the same when you want a better model. One cannot imagine life in the civil sector without middlemen. One surely does not expect a Ratan Tata or Dhirubhai Ambani to open a shop in Bhendi Bazaar to sell his product.

Defence procurement is no different. In fact, there have been agents involved in defence deals as far back as one can remember. In the early 'sixties, the Indian government decided to commence production of frigates in Mumbai's Mazagon Dock. A great deal of varied equipment is required in the construction of a ship and literally hundreds of contracts had to be concluded for their procurement or even manufacture in India. In practically every case of supply or manufacture, an Indian agent was involved, with full government knowledge. Ironically, not only did the government insist in those days that an agent be nominated, they even laid down what commission he was to be paid!

This was a sensible policy. Most of the suppliers of equipment were foreign who did not have any branches or subsidiaries in India. Both the government and the builders, Mazagon Dock, found it impractical to deal with the supplier directly. It was far more efficient to deal with an agent, who carried out a variety of tasks for you to earn his commission.

To start with, the agent cleared the imported equipment through customs and helped you install it on the ship. He stocked spare parts and did periodic maintenance routines. He rectified defects and when greater expertise was required, sent the fax to get the manufacturer's experts to India. He had the technical literature and sometimes even the right connection in the government to get your proposals through. In effect, the agent was godfather, troubleshooter, friend and philosopher rolled into one.

Sometimes extremely close relationships developed between the user and the agent. In one case, when naval headquarters were unable to get the necessary amount sanctioned from the ministry for an urgently needed part in time, the agent funded the amount himself. In another, to avoid lengthy customs procedures, an agent's man brought a small part along with him in his suitcase. In both cases the ship was kept operational.

The agents were as patriotic as their service counterparts. In 1971, the contribution of agents to keep equipment and weapons fighting fit was invaluable. Little credit was given to them for their contribution in the success of the services. Of course, in those innocent days the relationship between the armed forces and the agents did not go beyond the company ball pen, the annual calendar and the occasional bottle of scotch. In short, an agent was not only a respectable word but a useful and necessary cog in the wheel of defence procurement.

Bofors spoilt all that. A new breed of middleman had emerged. This type of middleman provided no service. His main profession was influence peddling and his main weapon, the underhand bribe. There was little professionalism in any of them. They hardly knew the difference between mortar and monitor or turret and transom and they did not need to. They knew their South Block well. They knew what made a file move and what needed to be done to bring a deal to a successful conclusion. They had easy access to the corridors of power and knew the price of everyone but the value of none. They were few in number but their antics helped condemn the entire profession of useful agents who had helped build the defence industry in the country.

In placing a blanket ban on the whole range of middlemen during the post-Bofors period, the government effectively cut its own nose to correct the conduct of a few. The sufferers were the armed forces, especially those in the field. For a short time things came to a standstill. Ships, aircraft and tanks ran out of spare parts. With the intermediate link missing, interaction between the manufacturers and the users ceased. New procurement of equipment came to a standstill.

Fortunately, good sense prevailed. Officers in service headquarters quietly ignored the order not to deal with agents and began to contact them for help. The agents too, appreciating the situation, quietly began to restore their previous relationship with the services. If the Defence Ministry knew about the reconnection, they turned a blind eye, knowing fully well that the initial order itself was harmful. Now that the Vigilance Commission has recommended the restoration of the status quo ante, the Defence Ministry would do well to show more pragmatism and once again install the agent as an intermediary in defence deals who performs useful service prior to, during and after negotiations and procurement. Furthermore, as recommended by the CVC, "it would be far better to have a transparent and well thought out system of awarding commissions in place."

Admiral J G Nadkarni (retd)