Arms and the agent

Sandeep Dikshit

ENTREPRENEURS IN the recession-hit economy have been in a state of eager anticipation ever since the Defence Ministry signalled its intention of allowing agents to represent foreign suppliers. On the other hand, elements of the fourth estate and a few political formations are mustering protests against the move to usher ``certified commission agents'' in the restricted-entry corridors of South Block.

Basically, the Defence Ministry has taken two initiatives in the last two months to allow agents of foreign weapon-manufacturers to negotiate with defence officers on behalf of their principals. First, on September 11 it stated its intention to permit agents for foreign suppliers on the basis of a report which examined the whole issue against the backdrop of the experience gained by carrying on without `legal' agents for the past 12 years.

Second, guidelines were issued for nominating agents on November 2. According to a theoretical base paper on the subject, the norms are a ``comprehensive formulation of the role which agents employed by foreign suppliers may be legitimately expected to play''. The paper itself was a review of the 1989 guidelines, said to be inspired by the Bofors case, which had banned agents for foreign armament-manufacturers. The 1989 policy was extensively reviewed to precisely define the conditions under which an agent would be allowed to represent a foreign supplier.

Several influential sections of the establishment had also backed the rescission of the 1989 policy. The Central Vigilance Commissioner had been airing his pro-agents views with his distinctive eloquence at several public fora. Mr. N. Vittal's views were closely screened at the top, not only because he holds a pivotal post but also due to his familiarity with the infamous tendering system in the Department of Telecom which he mockingly called the Department of Tenders.

Both Mr. Vittal and the Defence Ministry believe licensed agents will bring transparency to arms deals. They will also be readily available for information about the latest advances in sophisticated combat and non- combat technology. These agents would also be at hand for evaluations of the systems, price negotiations and resolving performance and warranty issues. In the past decade, several transactions have gone sour or faced cost overruns because of delay in communication between the Government and the foreign supplier.Defence Ministry officials say the perception of arms agents as fat cats partying in five- star banquet halls and lush embassy lawns is just 10 per cent of the story. Discussions on every little screw that goes in a weapon can last for days. Truckloads of technical documents are scanned and painfully exhaustive sales agreements are drawn up.

They also point out that the heady days of the 1970s and early 1980s when India binged on defence items have been replaced by caution and temperance brought on by the tight financial position. Competition for the few slots of authorised agents will be tight. The field is already crowded with second-generation agents from the established families of the Jains, the Guptas and the Nandas who have handled deals or acted as service agents for avionics for MiG-21s, Sukhoi-30s and Westland helicopters and HDW submarines.

While issuing the guidelines, the Government has taken two precautions to address misgivings. The first is to provide continuity by coopting the existing guidelines of the Department of Supply for foreign agents in civilian purchases. The ``new norms'' are actually not new at all. They are a revival of a clause in the Government Financial Rules which guide all Government purchases and another mentioned in the Manual of Office Procedures for Supply, Inspection and Disposal. The GFR clause states that `in sourcing of all imported articles, preference will be given to those supplied through India-based establishments''. Shorn of officialese, the `Office Procedures' also ask the Government to avoid placing direct orders to foreign manufacturers.

Second, it has tried to guard against the danger of over- familiarisation of officers with the agents and the lure of future employment as agents in case of those on the verge of retirement. Defence officers dealing with the agents will be specially authorised to do so by the services establishment and all companies have to specifically mention if their agent had served in the armed forces.

``At least this will give some legitimacy to a system that has always been around. The previous system has been thoroughly beaten and compromised,'' says a budding defence circuit entrepreneur. Far more serious than a few crores going to politicians from foreign defence deals is the pressure that is mounted under the threat of blacklisting firms.

The guidelines are designed to give legitimacy to the institution of agents. They will have to make many disclosures upfront including practically all financial information about themselves and their companies. But the guidelines have their limitations.

Major purchases from abroad to protect our borders are too sensitive and gargantuan to be settled at the Defence Ministry level. The entire Cabinet is involved in such decisions including the Prime Minister's Office. Agents, therefore, will fall into two categories. One, the legitimate, Defence Ministry-authorised ``guidelines-wallahs'' comprising the bright young corporate executives who will do all the paper work. And, two, ``families'' who have always pulled off complex deals, guidelines or not, because of their access to establishments higher than the Defence Ministry.

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