Building Crony Capitalism and Calling it New Defence Policy

Prabir Purkayastha

THE former president of France, Hollande, exposing the role of the Indian government in the choice of Anil Ambani Reliance as the offset partner in the Rafale deal shows that crony capitalism is thriving in Modi’s India.  It now transpires that the Rafale contract is not the only one in which Anil Ambani Reliance secured the PM’s blessings. The Indian government has put together a whole new policy of defence procurement – a Strategic Partnership model – which keeps out all the defence public sector undertakings (PSUs) in favour of the private sector.

This strategic partnership policy is initially for four major sectors, all of which are in the process of major acquisitions and floating mega contracts. These are:
• Fighter Aircraft
• Helicopters
• Submarines
• Armoured Fighting Vehicles (AFVs) / Main Battle Tanks (MBTs)

However, Amphibian Ships/Landing Deck Platforms also seemed to be included for strategic partnership and reserved for the private sector, though not explicitly mentioned.

No prize for guessing who the lead contender for these lucrative partnerships is. Once again, it is Anil Ambani’s Reliance, with major public sector undertakings including HAL, Mazagaon Docks and Hindustan Shipyards being frozen out of the bidding. The amounts involved are staggering – a possible Rs 80,000 crore for submarines, and Rs 60,000 crore for naval aircrafts, the two other areas apart from fighter aircraft, selected for such strategic partnership.

In an embarrassing development for Modi and his love for Anil Ambani’s debt-ridden empire, Ericsson, the Swedish Telecom manufacturing company, has now asked the Supreme Court that Anil Ambani not be allowed to do a Nirav Modi, and leave the country. This is for defaulting on a Supreme Court mandated payment of Rs 550 crore that Anil Ambani Rcom had agreed to make Ericsson.

For those who have followed these columns on the Rafale Deal, would know that each step of the Rafale process was shrouded in secrecy and violated existing policies. What the Modi government has now done, with a pliant defence minister, is to convert Modi’s violations of policy as the new policy. This policy called “Revitalising Defence Industrial Ecosystem through Strategic Partnerships” was added to the Defence Procurement Policy 2016 (DPP 16), as Chapter VII on  May 31, 2017.

The key elements of the policy are i) large scale induction of private sector in defence ii) major contracts for defence to be used to create tie-ups between foreign suppliers and Indian players iii) key acquisition areas will be reserved for such tie-ups iv) existing public sector, even those who have experience and capacities will be kept out of such contracts.

Let us look at the big ticket items now on the anvil and who are the bidders. First is the purchase of another 110 fighter aircrafts, urgently needed by the Indian Air Force because Modi scuttled the earlier deal for 126 aircrafts. The Dassault-Reliance joint venture is now a front-runner for the contract, with Dassault’s CEO Trappier stating that Dassault needs an order of 200 aircrafts to transfer technology. He is now in driver’s seat, having secured the order for 36 aircrafts thanks to Modi. Indian Air Force has invested considerably in training, integrating such aircraft in its air defence. So 36 was only the thin end of the wedge, preparing the ground for much larger contracts for the “Strategic Partnership”.

The second is the contract for four Amphibian Ships/Landing Deck Platforms (LDPs) estimated to cost around Rs 20,000 crore. In 2013, the ministry of defence (MoD) had floated a tender for two such platforms to be supplied by private parties, while two had been reserved for Hindustan Shipyard Limited. This was cancelled in early 2017, and a new tender for all four Landing Deck Platforms was floated, keeping Hindustan Shipyard out, and asking only L&T and Reliance Defence Systems (Anil Ambani Reliance) to bid.  There was no explanation why the contract to Hindustan Shipyard was cancelled, or why it was not allowed to bid. Neither has MoD offered any explanation for keeping Mazagaon Docks also out, the major shipbuilding enterprise in the country. Presumably, though not explicitly mentioned, amphibian vessels are also in the strategic partnership sector, read private sector.

The third is to build six advanced non-nuclear submarines for the navy, with an approximate budget of Rs 80,000 crore. Again, the only two private players are L&T and Reliance Defence Systems. Will Mazagaon docks, which is the only shipyard in the country that has built submarines including the nuclear submarine, be allowed to bid? Not if we read the strategic partnership policy document, which is reserving this sector for building the private sector. Again, Reliance Defence is a contender, even though its finances are no better than Rcom’s, in which Ericsson is asking Anil Ambanis’ passport to be impounded.

Reliance Defence Systems, is a different entity from Reliance Defence Limited, the entity involved in the Rafale deal. It acquired Pipavav Shipyard in 2016, which itself was staggering under a debt of Rs 6,000 crore, and unable to pay its contractors. Pipavav Shipyard has now been renamed as Reliance Naval (Rnaval), and involved in the Rs 20,000 crore Landing Deck Platform and Rs 80,000 crore submarine orders. By itself, RNaval stands no chance of competing with either Mazagaon decks or Hindustan Shipyards. That is why the DPP 16 and the strategic partnership route allows a backdoor entry of private parties without competing with the public sector units. Modi’s blessings are with Anil Ambani, the Force, is in indeed with him!

We have earlier pointed in our columns that the key difference, between Make in India and Made in India, is with respect to self-reliance. The public sector was created primarily to develop self-reliance in critical sectors such as infrastructure and defence. These are what guarantee the ability of the country to be independent of others and preserve its strategic autonomy.

It is the public sector that created India’s ability to absorb complex technologies and indigenise them. For those who may not be aware, the Indian public sector undertakings, and organisations such as BARC and ISRO, not only created indigenous technology, but also created an eco-system around themselves. Indian electronics manufacturing came out of BARC and its spin-off ECIL. Similarly, ISRO has created a whole bunch of suppliers with capabilities to manufacture complex satellite systems and rockets. Killing public sector undertakings such as HAL and Mazagaon Docks will not only kill these huge undertakings built with investments in plant and people over decades, but the entire eco-system around them. This is the other destructive element in Modi’s policies: it is directed against both the public sector, and the smaller private suppliers that provide Indian industry with its broad base. He is instead, entirely focussed on Indian big capital – Ambani brothers, Adani, etc. This is how policies where state largesse go, not in creating technology or an industrial base, but as gifts to big capital. Of course, such “gifts” could have “return gifts” as well. But with the new policy of elections bonds, all such return gifts from the corporate sector to political parties will now be white-washed and anonymous.

Modi government has not only opened key strategic defence manufacturing areas to private sector, but has been reserving it exclusively for them. That too, for companies which have proven ability to take huge loans, and run down their companies to near bankruptcy. For private companies without technology or capability for such mega contracts, the government is promising to find credible foreign manufacturing partners and marry them, in a re-run of Rafale deal. This is what Hollande said on Rafale: it was the Indian government that forced Reliance as Dassault’s partner; the French side had no say in the matter. This is now India’s Strategic Partnership Policy – building crony capitalism while calling it “policy”.


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