New Delhi, 17 March 2001

The nation has been shocked to the gills by the visual exposure of Defence payoffs by the dotcom company tehelka.com. We congratulate tehelka and surmise that some of the conversations appear to have been doctored with the video pictures, but also recognise that it was high time the blatant way Defence business is done was exposed. A laudable objective has been achieved and so what if it is by deceit.

For the first time there can be no denials in the eyes of the people. RM George Fernandes may not have taken money like Rajiv Gandhi may not have in the Bofors case, but then in both cases friends and others did the collections. In this case the close advisers failed to keep the PM apprised, as he seemed paralysed for two days.

By banning legal Agents, sleazy facilitators have entered the Defence Biz. IDC has all along written extensively on this and recommended that Legal Agents be brought back and competitive transparency be restored.

This no Agent business is a ruse that Rajiv Gandhi pushed down and even George Fernandes defends. To illustrate: General Electric supplies LM 2500 turbines to the oil industry and 2½ % commission goes to the Agents, but when it supplies the same turbines to Defence i.e. HAL for the Navy, there is supposed to be no commission. This is absurd –– as all Defence Companies have large allowances for commissions and payment of commissions is a part and parcel of how world business is conducted and India cannot buck the trend. It will only tempt more surreptitious deals.

In the tehelka films it is now clear money has changed hands rapidly and blatantly, which has been video taped for the first time. The persons involved are allegedly all those very close to RM George Fernandes, the Samata party bigwigs, some MOD officials and Military brass (Maj Gen Chaudhry, DG WE has admitted on TV that he was tempted and took Rs 1 lakh and now regrets it) and the top BJP functionary and some touts have all dipped into the till, and to say that the money was given to them for the party voluntarily is to "tell it to the marines", as Navy would say.

Names of Jaya Jetley, Jain, Nanda and Gupta who have nothing legal to do with Defence figure and it was common knowledge these names have influence over defence deals so lets now see how Government handles the crisis .

George and his close friend of many years Jaya have resigned and we learn her daughter was to marry a cricketer (next month), who also made the news earlier for money lying around. Hence IDC will keep up the analysis in the national interest.

IDC had also reported that at the IFR the Navy displayed the Rafael BARAK missiles fitted on the INS Viraat as strap-ons, but the acquisition and control radars from IAI were still to be fitted and Viraat was still to embark the air squadrons. So it seems that  some fast acquistions definitely took place and hence payments; and we do not know what the PM meant when he said "Dal me kuch kala lagta hai" (There’s a fly in the ointment), because now it comes out that seven systems have been bought, maybe two for the Bhramhaputra class.

For researchers and for those who enjoy following the Defence and Economic scenes, we append below three connected pieces. One is on corruption in Defence deals, another on Jaya Jetley from a book on Vishnu Bhagwat and the third is Dr Montek Alhuwalia's note of 1991.  So enjoy the coming defence and economic situation as it is unfolding and make your own prognosis.


(Extracted From ‘Indians Why We Are What We Are’ by Ranjit Rai (Manas))

Chitra Subramaniam in her book India is for Sale said this "One fine day Western Governments got an idea. They decided to infiltrate the NGO movement in India. The government of India hit on a better idea. It itself became an NGO, donned a wig, a moustache and let itself loose on the world stage. The GONCO -- government-non government organization -- was born".

India like most developing countries is known for people with power pushing vested interests and indulging in corruption at the cost of national interest. Most Asians have a streak of corruption in their veins. In South East Asia, especially in Indonesia, Thailand and Malaysia the system is accepted and has been legitimised. In these countries cost of international deals and projects are over projected within acceptable limits, to pay off people normally to the tune of five to ten percent of the total.  A fee is charged for a better than normal service in these countries. The person who tops the cream, the bribe, the fee or commission or whatever you wish to call it, delivers. He is reasonable in his demand and refunds the fee if he fails to deliver. He seldom squeals.  It is done with great suave. South East Asian leaders especially Mahathir of Malaysia and Suharto of Indonesia refined this art. Marcos over did it. They lasted a long time in their offices, and the projects they initiated are stories of national success. In South Korea Presidents have had to face death penalties for corruption and nepotism.

In Singapore Mr. Lee Kuan Yew, the ex PM whose tenure lasted 25 years, ensured high salaries to the bureaucrats and set personal standard to keep most corruption out. His wife earned for the family by running a prosperous Law firm. Singapore enlists into the Peoples Action Party educated leaders who realise they can make legal money by enriching the nation whilst big brother Mr Lee known as Harry, watches over the Nation. Their Armed forces sing the song "You can count on me". It is said that in Singapore the Policeman goes for his duty without any money in his wallet so that he can never be accused of being in possession of money that came to him by any wrong doing.

In the Philippines corruption is common like in India, but the people are emotive and forgiving. The Marcoses plundered the treasury and now Mrs Marcos is willing to return some of the assets for a deal. In Thailand corruption exists but the Buddhist way of life ensures that by and large no individual living being is hurt or robbed in the process. The leadership, mainly military, has dedicated itself to economic progress, whilst pursuing personal business. Prime Ministers and leaders resign when the game is up. If things get too hot they live abroad for a while. In Japan, Prime Minister Tanaka resigned and went to jail for accepting a bribe in what was the Lockheed scandal, giving credence to a premise that corruption is a world wide disease.  It is however more commonplace in developing countries, which calls for some control and Military deals are especially tempting, for the secrecy that surrounds them. Governments use the proceeds for political aims and salve their conscience.

Arms Bazaar Deals

Arms deals world over have a tinge of corruption. In the Arms bazaar big money and big power play is at stake.  It is well known. And many countries use this source to fund the political party or regime in power.

In the UK, the media has openly insinuated that Mark Thatcher, son of ex Prime Minister Baroness Margaret Thatcher, received kickbacks involving millions of pounds from the Saudis. It also involved Mr  Aitken, once Minister for Defence Procurement. Since it was the Ahmara Project and earned for UK some 1.5 Billion Pounds the Parliament feebly inquired into the deal but let the Auditor General's enquiry die an ignoble death. In the recipient nation eyebrows are raised higher, and India has always been a buyer nation. Unfortunately, arms scandals are seldom solved. It is rumoured India's Defence Minister late Shri Jagjivan Ram accepted stones (diamonds) in bags from arms suppliers for deals made in the late 60s and the early 70s. His collection was known as the 'Rams Collection' in Holland. The modus operandi that arms suppliers use to legitimise diamond purchase entries in their account books is by entering them "as diamonds for tool cutting''. These diamonds are then handed over to their customer and written off the ledgers.  In such cases Swiss banks and Panamanian go betweens are avoided and Indian customs never checked a Minister, never one who brought in stones anyway. Diamonds can be conveniently used for payoffs.  Diamonds are forever!

Indian Scandals

In India, as in many countries in the East there have been tinges of corruption in all government deals, especially in the oil sector. This area was the largest spender in the 70's, mainly for import of equipment and rigs for oil exploration. A cozy relationship between the oil agency ONGC, the Government officials, the foreign suppliers and their agents grew as India's oil finds increased. Some years later, in the early eighties, an arms purchase called the HDW German Submarine deal erupted into a scandal.  Late Sanjay Gandhi's name along with the Swaraj Paul group of UK and Hindujas and some other names of bureaucrats and service officers were bandied about but the matter still breathes in court.
There was no tehelka then. Highly placed Indians receiving bribes used Non Resident Indians as conduits since they are immune from the income tax laws of India in respect of their overseas earnings and assets.  Then came the Airbus deal when these aircrafts were bought, overriding the professional choice to go in for the Boeing 767s or the 757s.  Other names and another scandal followed. Indians began to live with this malaise, but investigative reporting was making inroads into the country, and a bombshell dropped just when corruption by people in power was becoming blatant, and no real culprits were being caught. Then came the Bofors when Arms Agents were banned by Rajiv Gandhi and Mr. Bhatnagar the Defence Secretary and it has done more harm than good.

The Bofors Scandal

The Bofors scandal has waylaid India from 1987 to date. The moral of the story is that Indian Defence has sadly, not contributed to nation building. Defence spending and Defence luxuries like the Sri Lanka foray during Rajiv's time were enunciated by a "policy on the run". It became a cosy arrangement between South Block mandarins, Service Chiefs, R&D menagerie headed by Dr VS Arunachalam from 1982 and supply industry (foreign and indigenous) where the tax payer ended up by being taken to the cleaners and being fooled beyond belief. The system of procurement needed Agents to dole out moneys freely to all and sundry in the hope of achieving influence to make a killing.

Tehelka illustrates how decisions on vital Defence purchases were dictated by vested interests and taken arbitrarily at high levels, even though professionals lead our Armed Forces. This present story throws light on a new and very powerful belief, which is the subject of gossip.

Huge commissions have been loaded in India on virtually all big foreign contracts –– not just the Defence ones. A part has gone into the coffers of the party in power but most has gone into individual pockets. It has been anarchy, corruption and vested interests aggravated and abetted during the present regime. Today money taking has become blatant and yet no scandal or kickback deal in India ever gets solved. Only scapegoats are found and this time some people in the Armed Forces will be guillotined.

In the 60s a Jayant Dharma Teja took loans to build up the Jayanti Shipping Company under Nehru's patronage. He fled to Costa Rica for a few years and was caught much later. In 1971 an ex Army Captain by name RS Nagarwala imitated Mrs Gandhi's voice on telephone and collected Rs 6 million in cash from Mr VP Malhotra the chief cashier of the State Bank. He was nabbed but on 02 Mar 72 he died mysteriously.

In another case a Rajendra Sethia defrauded Indian banks of 7.64 Million Pounds in London.  The story can go on. BOFORS is the biggest of the many unsolved cases, but in hushed tones names of Agents are well known and IDC reported we saw some at Aero India social functions.

Why corruption levels in India have risen to such heights is a moot question. W S Naipaul, author of 'India, a Million Mutiness', is the one writer who has depicted India with a perspective and a sense of honesty, which is not easy to digest. He writes with stark reality that in the Gandhian spirit Indian people soon after Independence, in both high and low places, felt proud of being poor. This attitude was evident throughout the fifties and sixties and may have served us well, but we never changed with the times. The gargantuan Income Tax structure did not allow for the creation of legal wealth and the evil of black  money in most matters especially property became endemic. By the seventies the moral fibre of the people was weakened and many became rich through corrupt practices. The road to riches via hard work and enterprise gave way to avalanches of corruption.


(Extracted From ‘Admiral Vishnu Bhagwat -- Sacked Or Sunk’. As Reported In Outlook, the book was banned by MOD)

'Behind every successful man there is a woman' is an often repeated cliché. The key word is behind him, and when she precedes him there is bound to befall some trouble. In defence forces wives play a prominent role especially as an officer progresses in his service career.

In case of Admiral Vishnu Bhagwat his wife Niloufer was a firebrand advocate who was baptized as a young lawyer as a junior to Mr. Rajni Patel in Mumbai. He was a renowned criminal lawyer and his reputation as a politician also, is still well remembered. Mrs. Bhagwat therefore always stood up for causes, stormed the lower and high courts of Bombay and had built up a reputation as a lawyer with tenacity. The judges knew her This could have been her asset. But when she saw her husband being sidelined for the Fleet Commander's post, which she believed Vishnu deserved, she chose the high legal turf to fight the battle and trap the senior officers of the Indian Navy. The result was the 400 page writ petition which came as a bombshell and some thing novel for the Indian Navy. A service that thrived on professionalism, technology, camaraderie and dedication was now dealing with 400 pages of allegations, some so dangerous and slanderous that the CNS Nadkarni called for a 'courts martial' of the petitioner, and this has been highlighted in a full chapter with verse and quote.

Mrs. Bhagwat also vitiated the atmosphere and hurled charges and accusations against the Akali Dal, George Fernandes and one of them was against Shrimati Jaya Jaitley, the then Secretary of the Samata party and now its President. Mrs. Jetley ex Jaya Chettur from Kerala had her college education in Miranda College in New Delhi in the early sixties. She is the wife of a senior IAS officer and friends who knew her in college rate her academically above average and a talented personality. On TV she comes off as a very articulate person. She came into prominence as being close to George Fernandes of the Samata party and now we know how close. In an exchange of letters in the Hindustan Times Jaya Jaitley pulled up the editor for quoting the remarks made about her by Niloufer Bhagwat. One would have thought that the matter died a natural death as Mrs. Bhagwat was not seen or heard of in the media once Vishnu began defending his case. It was not to be. Jaya Jaitley came out with a piece on Niloufer Bhagwat in the Pioneer titled "Wife, Lawyer, Politician or Mouthpiece".

Next came the arms dealers angle. Now what would Mrs. Bhagwat a lawyer, whose brief it is to deal with a case against a client on a matter of promotions, be doing flinging mud on the entire Navy. It became a battle between the two women. In an interview to the Hindustan Times on January 10, 1999 when asked to substantiate her allegation that the Defence Minister was planting stories in newspapers, Ms. Bhagwat called him "temperamentally low" because he was one of those associated with "the very people (she presumably means Lok Nayak Jayaprakash Narayan) in asking the armed forces to revolt" and because he supposedly "went around attempting to blow up institutions:" Mr. George Fernandes led the underground battle against Indira Gandhi's dictatorship and declared that any means were legitimate to fight an illegitimate Government. Jayaprakash Narayan has recently been awarded the Bharat Ratna and Mr. Fernandes has held prominent positions in all non-Congress governments. Now the whole Ministry is being dubbed as corrupt. Jaya Jaitley also got upset when the Congress party took up Bhagwat's case to ask for a Joint Parliamentary Committee and spewed her venom on the Congress party leader Mrs. Sonia Gandhi. She listed charges against Bhagwat and questioned the integrity of Lieutenant General P.N. Hoon who had filed a PIL in Mumbai. He has threatened to sue Mrs. Jaya Jaitley for her article in the Pioneer on April 7, 1999.

Now we have some wheeling dealing at the Defence Miniter's residence by Jaya on celluloid, though it is reported in the media that she has three other residences at Sujjan Singh Park (in her mother's name), in Khirki Malviya Nagar and in Kaushalya Park off Haus Khas. The whole scene is interesting. IDC spoke to a Maj Gen who is a very competent journalist and who was a very pro George Fernandes writer and his reaction was George will be back sooner than you think. We leave you to make sense of all this.

Finally A Piece On The Economy

In the last few days IDC has received responses and few have questioned our optimistic analysis of the Indian Economy, which was done before the tehelka tapes were made public. IDC also attended the Konrad Adenauer Trust Conference on "Impact of Globalisation in South Asia". We were convinced Globalisation is about transparency, technology and open competitiveness and efficiency. We learnt Sri Lanka has made strides and despite LTTE insurgency, maintains 6% growth and highest per capita income of 840 USD in the region. India comes next and has FFE of 43 bill USD and comfortable debt payment schedules and deficit is down to 5.1 %.

IDC wishes to highlight the note written in Oct 1991 by Dr Montek Ahluwalia, (then Finance Secretary) for the then Finance Minister Dr. Man Mohan Singh, for submission to the then PM Shri Narasimha Rao. India had only 1 bill USD FFE and deficit was mounting to beyond 6.5 % of GDP with danger signals.

In hindsight the note makes great economic reading for researchers and for IDC to see that in 1991 India was worrying about 600 mill USD loan adjustment. Hence IDC congratulates FM Yashwant Sinha and his team which includes economists Dr Montek Alhuwalia and Dr Rakesh Mohan for the second round of liberalization. In defence deals we also look to transparency and hope the economy and liberalisation is not derailed because of tehelka as the world economy is slowing down and if India dithers you and I will suffer.


By Dr M S Alhuwalia

The Annual Meeting of the Board of Governors of World Bank - IMF took Place in Bangkok on 15th – 17th October 1991. Finance Minister participated in these meetings as Governor for India on both these institutions. The meetings provided a useful opportunity for bilateral discussions with Finance Ministers of most our major aid donors, and also with the top management of the IMF and the World Bank. The meetings also discussed several critical issues in the area of international finance, including the prospects for mobilizing support for the reforms in the Soviet Union. The note summarises some important development sin the meetings, which are particularly relevant for us.

The development reported in this note have to be evaluated in the Background of our exceptional Balance of Payments difficulties and the consequent loss of confidence in our economy on the international financial community.

This had led to a freeze on new lending by commercial banks and a continuing outflow of NRI deposits. The withdrawal of these normal flows meant that we faced a substantial "unfilled gap" in our external payments requirements, even on the assumption of substantial important restraint unless drastic import restriction beyond the present levels which would precipitate serious description of industrial production, severe shortages of essential products such as diesel and kerosene and unavoidable pressure on prices. The unfilled gap is estimated at round $3.8 billion in1991-92 and $ 2.8 billion in 1992-92, it has been our objective to meet this unfilled gap by a standby credit from the IMF combined with special fast disbursing loans from the World Bank and the ADB support of our structural adjustment programme, An important positive development from our point o view is that it is now widely known in Financial Circles that the proposal for an IMF stand-by credit of $2 billion (over an 18months period) will come before the IMF Board on 21st October. It is also known that we have successfully concluded negotiation with the World Bank on a structural adjustment loan of $500–600 million, which could go to the Banks' Board in the third in the third week of November. The Bank's top management have confirmed that they would be willing to provide further support for two other elements in our announced policy viz the National Renewal Fund and Financial Sector reform. International financial community sees these developments as an objective endorsement by multilateral financial institutions of the economic Policies of the government and they have helped to create confidence among commercial banks.

In meetings with the UK, France, Germany and Japan at FMs level we were assured that the economic directions indicated by the government are appreciated and we will have support in the World Bank and IMF.

Because of the support of major industrialized countries and also the top management of the IMF and World Bank we are beginning to see a perceptible change in the attitudes and assessments of the commercial banks. Several commercial banks approached us with suggestions that once the IMF-World Bank Programmes are in place by the end of November, India would plan to approach the commercial markets say in January for new borrowing of about $500 million.

Against these positive developments there are also several danger signals. A basic problem we have to recognize is that although our policy initiatives are widely appreciated, there are understandable doubts about whether we will deliver on what we have promised. There are several reasons for this.

One reason for skepticism is the view that India has in the past, announced economic reforms but the initial initiatives have been allowed to peter out. In the present situation, there are questions whether, in the absence of a clear parliamentary majority, we will be able to deliver on potentially controversial proposals, which could always run into motivated opportunistic criticism. There is also tremendous suspicion that the bureaucracy will simply not let liberalization and de-regulation proceed. These doubts at present are only doubts, and do not diminish the genuine applause for what the government has already done and announced to do in future. But they will surface quickly if we do not persevere in what we have said we will do.

For these reasons our performance under the IMF standby and the World Bank SAL will be watched carefully to see if we meet the milestones we have set for ourselves. The most important of these is the target of containing the fiscal deficit in 1991-92 to 6.5% o GDP Progress towards this objective is monitored every few months and failure to meet this objective would seriously jeopardize our credibility. It would lead to interruption, or cumbersome renegotiation of the Fund Programme in a situation in which we would have little goodwill to count on. It is also important to delivery on the various elements of our structural adjustment programme including especially the deregulation envisaged in the trade policy, the dis-investment in public sector enterprises and the establishment of a National Renewal Fund."

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