The story so far:India

Twenty-two years after Rajiv Gandhi courted ignominy by claiming no commissions were paid in the Bofors howitzer deal with Sweden - when, in fact, they were - the UPA government headed by Manmohan Singh seems headed in the same direction with the Rs 10,000 crore missile deal involving Israel Aerospace Industries (IAI). Rajiv's widow Sonia Gandhi is the presiding deity of the UPA coalition.

The deal, for the purchase of medium-range surface-to-air missiles (MRASM), was signed towards end-February this year, just days before the general elections were announced. In the Bofors case, the main allegation, first aired by Swedish Radio, was that Rs 64 crore of bribes had been paid to Indian middlemen to procure the deal. In the MRSAM case, the UPA government, has, curiously, agreed to pay nearly 10 times that amount as "business charges." At 6% of the total contract amount, these "business charges" amount to a whopping Rs 600 crore on a Rs 10,000 crore deal. Defence industry insiders expressed incredulity that anyone can bill Rs 600 crore as "business charges." The charges are either inflated or illegitimate, they emphasise. Insiders suggest that the cabinet committee on security (CCS), which cleared the deal, and the ministry of defence (MoD) were either complicit or gullible in accepting the arguments forwarded by IAI while levying these hefty "business charges." It is unprecedented in a contract of this nature - which is supposed to be a joint development project. The CCS has prime minister Manmohan Singh, external affairs minister Pranab Mukherjee, home minister P Chidambaram, defence minister AK Antony and planning commission deputy chairman Montek Singh Ahluwalia as members.

The Israelis had apparently explained away the amount saying it was meant for banking, transportation and insurance. DNA investigations suggest that the MoD completely bought this line.
That there could be something fishy is clear from the fact that most of the MRSAM systems will be manufactured and finally assembled in India. So even if one were to assume that IAI is paying some transportation, insurance and banking charges, the amount would have been much lower. "It couldn't have been more than 1-1.5%," says one military source familiar with big defence deals. Another source, who has handled projects similar to the MRSAM joint development deal, says these "should have been actual payments" rather than lumpsum charges. When DNA questioned a senior MoD official, he defended the MRSAM deal charges. He told DNA that the issue had been clarified with IAI and the government was satisfied with the explanations provided. It is bizarre how the government could have completely bought the IAI argument. The 6% business charges were, in fact, questioned at the CCS level and an explanation sought. The MoD asked the Defence Research & Development Organisation (DRDO) about it, which, in turn, asked the Israelis. The Israeli explanation was apparently completely acceptable to DRDO, which, in turn, passed this on to the MoD. No independent assessment was apparently made on whether the government was justified in paying Rs 600 crore as "business charges" in this contract.

The defence minister then duly sent the DRDO explanation to the finance ministry for its perusal. A dependable source told DNA that then finance minister P Chidambaram himself wrote on the file that the charges could be agreed if MoD could justify the quantum. But the MoD satisfied itself mainly from the Israeli firm's own explanations. It made no verifications of its own. The MRSAM deal is a joint project in which IAI would be leading the development of a medium-range surface-to-air missile for the air force. The DRDO is a partner in the project, but will effectively get only a third (Rs 3,000 crore) of the Rs 10,000 crore bounty. IAI gets the bulk of it, over Rs 7,000 crore. The missile is to have a range of around 70 km. Disappointed military sources are also appalled by the fact that despite India paying up such a huge amount of money, there is no significant transfer of technology. India's greatest weakness in missile production is "seeker" technology, which is one of the biggest Israeli contributions to the contract. But the Israelis won't be transferring technology for "seekers". Seeker technology is key to how missiles hit their targets.

Posted in: India,Missile