Fixing complex procurement rules and getting over our hypocrisy over middlemen
Sadly but unsurprisingly public debate over General V K Singh’s comments to the media is overwhelmingly concerned with personal motives, interests and conduct of the individuals involved. Given what has made it to the public domain is a fraction of a whole saga most “Why?” questions have no known answers, forcing people to impute motives and connect dots. Since everyone loves a good ‘scam’ we can expect the heat and decibel levels to go up in the coming days. [See a related post on "What to debate while debating in the dark."]
The most important question though has answers that are not cloaked in secrecy but are in plain sight. That question is: Why are there endless controversies over defence procurement, for things ranging from frozen meat to coffins, from trucks to helicopters? Inability to make defence procurements uncontroversial is not merely a corruption-related issue. It is a national security issue. If all you need to do to slow down India’s military modernisation is a plausible scandal, everyone from India’s strategic adversaries to disgruntled equipment vendors have an inexpensive option to do us in.
So why, despite endless revisions of procurement policies and rules, despite putting personally incorruptible ministers in charge, despite the efforts of honourable general officers to clear things up, do we still have a situation where someone can allegedly walk up to the army chief’s office and offer him a bribe? [See Nitin Gokhale's report]
The answer is because our defence procurement rules are too complex and we have made it illegal for those who can help navigate through these byzantine rules to operate openly. As I wrote in a 2007 op-ed in Mint:
Given their remarkable resilience, there has been no attempt towards examining why middlemen exist in the first place. Ironically, is this inability to come to terms with the fact that middlemen might play a useful economic role in a system with complex regulations has not prevented this government from further complicating regulations to keep them at bay. [Mint]
To make defence procurements uncontroversial then either we must simplify the procurement procedures or allow middlemen to operate under a regulatory framework. But why are procurement procedures complicated in the first place? That’s because we add too many objectives to a single purchase. Beyond whether a given purchase is effective, we are concerned about indigenisation, technology transfer, offsets and suchlike. At the same time we are frequently oblivious to the geopolitical implications of large purchases. My colleagues and I have argued in favour of liberalising the defence procurement regime so that the armed forces get the best bang for the buck. [See this Takshashila Discussion Document]
Others might disagree with the need to liberalise defence procurement and that argue that complex procurement rules are unavoidable. Even in this case, the policy on middlemen must still change. If rules are complex there will be those who can make money from navigating through them. That’s how lawyers, chartered accountants and travel agents make a living. There’s nothing intrinsically wrong or immoral about middlemen, agents and lobbyists. It is our rules that make them so, driving underground a genuine economic activity.
Instead of prohibiting middlemen in defence procurement, a far better policy would be to create a regulatory framework under which they can operate legitimately. Agents could be required to declare their past and current affiliations, and disclose relevant family connections. Former defence officers and their civilian counterparts could be required to serve out a cooling off period before getting into the business. The policy objective ought to be to align—to the extent possible—the economic incentives of the middlemen to the organisational interests of the armed forces.
While there can be a genuine debate over the best approach to military modernisation—on what is the right balance between liberalisation, indigenisation, public and private sectors—it is hard to see how we can continue to justify the failed policy on middlemen. Unless you are blind to reality, blinkered by sanctimoniousness or bound by hypocrisy, it should be clear that the consequences of the anti-middleman mindset are eating into the moral fabric of our defence services.
Related Post: A military modernisation manifesto