Making Profit the kingpin of National Security

The shrill self-serving nationalism of RSS-BJP Government manages to cover up the hollowing out of India’s strategic autonomy as they take privatization of military sector a notch higher. On August 16, 2017 the Union Cabinet approved a new mechanism to speed up “strategic disinvestment” in public assets such as Steel Authority of India Ltd, Bharat Earth Movers Ltd, Scooter India, Pawan Hans where substantial portion of stake would be sold along with transfer of management control. In some cases minority stakes would be sold. It also setup a Core Group of Secretaries empowered to take “policy decisions” on procedural issues and consider deviations necessary from time-to-time for “effective implementation”. The fact that a successful venture like BEML, a ‘navratna’ in the military sector, is on the chopping block, only highlights that the process of diminution of the defense public sector has picked up further steam. With BEML sale imminent, the sword hangs over other units because Indian rulers dogmatically cling to privatization as some kind of a magic wand and sell a dream of India as a major weapons exporter, as though there’s value in becoming merchants of war.

It is in the very nature of the Military that marks out its difference from other economic activity. This is one sector where the private sector should play second fiddle to public sector. Why? In the military sector the Government is the main buyer, and sovereign States or corporations enjoying sovereign guarantee, its potential trade partners. If this sector is privatized then not only will the Government as monopoly purchaser must assure continued orders to the private sector so that they can profit from their investment but they can influence, if not dictate, choices/order/price by also using its control over media to hype security fears and propagate the loss of jobs & retrenchment to arm twist Governments to place orders. A heightened sense of insecurity and fear mongering is good for generating profits for the private weapons industry. Not only firm orders but cost itself can be jacked up. Besides, whereas public sector is audited by the Comptroller and Auditor General and accountable to the Parliament the rapidly expanding privatized military sector has no regulatory mechanism in place to ensure that public funds are not squandered or misappropriated.

Besides, in India the Corporate oligarchs have largely fattened themselves by practicing, what Raghuram Rajan, former Governor of Reserve Bank of India described as India’s “Riskless capitalism”. For all the panegyrics for private capitalism fact of the matter is that Capitalists in India are known to clamour for Government subsidy or plead for Government takeover no sooner their units run into losses. Telecom Industry today is seeking massive bailout from the Government in form of interest subsidy and longer repayment schedule. While several new private sector thermal projects want National Thermal Power Corporation to take over their now non profitable projects!

It is against this background one has to assess the changes being brought about at a rapid pace in the military sector.

Now going by the 13th Five year Defense Plan (2017-22) envisages an allocation of Rs 26,83,924 cr for armed forces which includes Rs 13,95,271 cr under Revenue Expenditure and Rs 12,88,653 cr in Capital Expenditure. But, Institute of Defense and Strategic Analysis (IDSA) in a commentary says that approximately 6,83,730 cr required for Defense Pensions, BRO, Coast Guard, DRDO, OFBs have not been taken into account. [“The 13th Five year plan (2017-22) a re-run of the Past” Amit Cowshish, IDSA Commentary July 31, 2017]. Were this to be included the total funds requirement would go up to Rs 33,67,654 cr. Since Rs 3,59,851 cr were allocated for 2017-18,then for rest of the next four years would require Rs 29,07,803 cr, or an annual average of Rs 7,26,950 cr, which is double the current allocation. In other words next four years can witness a phenomenal increase in India’s military spending just as Indian Government dismantles bit-by-bit publicly held military assets. Where is the money going to come from if military allocations have to double? Is this why defense assets are being sold? Not to create new assets but to meet revenue demands? Ministry of Defense signed 23 contracts worth $12.1 bn with foreign vendors in April 2016-March 2017. It was $4.3 bn in 2015-16, and $1.69 bn in 2014-15. Thus a total of 61 contracts have been signed valued at $18 bn in three years. In other words there’s no perceptible drop in import dependence. An additional Rs 20,000 cr asked for by the MoD recently wants money for “400 major items and other smaller items” routed under revenue expenditure to get around the Defense Acquisition Council scrutiny for military equipment. [Army wants funds to buy munition”, Dinakar Peri, 28 August, 2017, The Hindu].

In such a scenario Government is pushing ahead with a policy which requires Public sector to ‘hand hold’ the private entities entering military sector. Rather than reform publicly held military sector in line with successful public ventures such as the Space Commission, or enable the type of indigenization Indian Navy was able to affect when it successfully designed and built Godavari Class guided missile Frigates, Vikram Class offshore patrol boats (backbone of the Coast Guard) and is now building submarines including the nuclear powered submarines.

Consider the report of the “Committee of Experts for Amendments to DPP 2013 Including Formulation of Policy Framework” headed by Dhirendra Singh [July 2015] which pointed out that private sector, foreign or Indian will invest provided there’s “assured orders” [ 3.3.09. (i)]; Indian private entities need “handholding” by the collaborator as well as the Ministry of Defense (3.3.09(v)]; and encourage a tie up between the Strategic Partner and the DPSUs because of “latter’s head start” [3.3.09(viii)].Elsewhere it returns to the same where they advocate allowing Indian private sector to “utilize” Government owned facilities like DRDO labs, quality test facilities under DGQA and proof firing ranges etc on “payment basis” [6.2.03(v)].

The Committee in a questionnaire meant for “Interaction with Expert Committee/MoD(DDP):DPP 2013 Review” also posed among other things, two questions no 7 & 8, which are worth noting in this connection:

Q7 “What are the views on corporatisation/privatization of OFBs? And can the infrastructure of OFBs be opened up for private industry?”

Q8 “DPSUs have over the years established extensive design, testing as system integration

infrastructure, which are considered capital as well as time intensive. Can these be opened up

for use by private industry in their initial endeavours?”

Significantly the CoE also advocated pre-audit of all major defense negotiations and contracts and drew attention to the Second report of the Standing Committee on Defense, 16th Lok Sabha dated December 22, 2014 as recommending that CAG undertake pre-audit of defense procurement. [5.2.06] There’s not a squeak on such an important issue which concerns public funds for the military sector critical to India’s independent security and foreign policy.

It appears that lessons of successful public ventures were studiously ignored and instead preferential treatment provided to the private sector as became evident in the Rafale deal struck with French corporation Dassault by RSS-BJP Government. Reliance Anil Ambani, the only private contender, was preferred over Hindustan Aeronautics Ltd, the partner envisaged under the original deal for 126 Rafale jets signed by the Dr Manmohan Singh Government. Eric Trapper CEO of Dassault which manufactures Rafales fighter jets was reported as saying that his company signed up with Anil Ambani group because “we were told that HAL was fully booked. We talked to Reliance and they were very keen to create such capabilities in India. They have a track record and the financial capabilities as well”. [Will need larger Rafale order for true Make in India: Dassault CEO; Manu Pubby, Economic Times July 6, 2017]. Unfortunately, the business news daily failed to follow up on the issue of “track record” of the Reliance Anil Ambani group as well as failed to find out from HAL if their hands were actually “full” and they could not take up joint manufacturing of Rafales jets. Reliance Anil Ambani Group is known for its Rs 1.25 lakh cr (Rs 1.25 trillion) of Non Performing Assets where they are unable to even meet their interest payments. If despite this Dassault found them suitable it is because they came recommended by the highest echelons of Indian Government. Another OEM in contention Swedish Saab Gripen has tied up with Adani Group which is a new entrant to the military sector and has the distinction of being number 4 on the list of top 10 defaulting corporation with Rs 96,031 cr in debts. Dassault and Saab Gripen presumably believe that their chances improve if they join hands with cronies of the current dispensation. Question is how does such tie up between Indian corporate oligarchs with huge debts and a sullied record and foreign OEM advance India’s interest?

Another contender for fighter jets manufacturing in India Lockheed Martin which has a tie-up with Tata Advanced System for F16 (Block 70) aircraft as part of Strategic Partnership for Make in India now says that India could become Maintenance, Repair and Overhaul hub. When the F16 was first offered, their sales pitch was that the entire plant from LM’s Fort Worth (Texas) would be transferred. Now they speak of India as MRO hub and not manufacturing hub. This is a devaluation of the original offer. [“Lockheed Martin says India could become F16 maintenance hub”, Tara Shukla , Mint July 31, 2017]. How does this benefit India?

Moreover, in June last Indian Government issued tenders for ammunition for Howitzers to anti-aircraft guns, with bids being invited to supply the items for next ten years. A surprise clause made its way into this tender which says that the “bidder shall be free to enter into a Transfer of Technology agreement with a company that has been banned in past or is currently under ban for dealings with Government of India as the Government does not envisage dealing directly with such a company”. In other words companies banned from entering into agreements to supply weapons to India can now circumvent the ban by typing up with a private Indian company. [“Private companies can now tie up with banned foreign vendors to make ammunition for Indian Army”, Manu Pubby, Economic Times June 22,2017].

Israeli Weapons Industries, formerly small weapons unit of Israeli state owned Israel Military Industries was blacklisted in 2012 along with five other defense contractors and barred for 10 years from bidding for Indian defence contracts.[“India Blacklists Israel Military Industries for 10 years” Ora Coren, March 07, 2012, The Haaretz.] Probe was ordered into IMI in 2009 and CBI investigated this and action was taken in 2012 on the basis of their findings. The other five companies blacklisted were Singapore Technologies Kinetics, Rheinmetall Air Defence ( Zurich), Corporation Defense (Russia), and two Indian companies TS Kisan & Co and R K Machine Tools.

So while military sector gets privatized, there has been recurring job shedding on in the publicly held defense entities. As a result in January 2017 Ordinance Factories had 70,810 technical staff 41% less than the 1.2 lakh sanctioned. Also there was 44% shortage of non-technical staff - 15,083 against a sanctioned strength of 22,524. Grade A officers are 40% short i.e. 1808 against 2981 sanctioned. As a result an order for 3 lakh pieces of Coats for Extreme Cold Conditions was taken away from Ordinance Clothing Factory (Avadi) and given to Bangalore (Bengaluru)n based Gokuldas Exports due to manpower shortage! This appears to be a deliberate policy to disable the defense military sector piece-by-piece.

As part of this OF have been barred from manufacturing 87 items including 37 weapon related items and the Prime Minister’s Office has shown a “keen interest” in details of land held by the 41 Ordinance factories the process has begun. [Kumar,Chethan:“Def ministry cracks whip on ordinance factories”; Sunday Times of India 28 May, 2017].

So we head towards dilution of India’s strategic autonomy as the RSS-BJP Government takes us down a slippery slope of privatization and dependence.

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