First published June 2008
The Comptroller and Auditor General of India (CAG) in its report tabled in Parliament on 14 March 2008, has not only questioned the wisdom of buying the 37 years old aging ship USS Trenton, but more damagingly, has deprecated acceptance of restrictive clauses by India. Under the restraining stipulations, India cannot employ the ship (which is basically a troops-carrier) for offensive operations and has to permit the US to conduct periodic inspections under the End-Use Monitoring (EUM) clause of the agreement. The ship, since named INS Jalashva (water horse), was purchased by India in September 2004 for Rs 200 crores under the US Excess Defense Article programme. It was a government to government deal.
The report has shocked most observers. Critics have been quick to express their indignation by dubbing the deal as another scam. They wonder why India bought a ship nearing the end of its useful life and agreed not to have unbridled control over its usage. More importantly, the CAG report has thrown up three vital issues which need to be addressed in the interest of national security. They are:-
•Is it prudent to purchase used defence equipment decommissioned by a foreign country?
•Should India accept restrictive clauses with regard to the use of equipment duly paid for?
•What exactly is the role of CAG in auditing defence deals?
Purchasing Used Defence Hardware
Every country carries out a periodic review of dynamic geo-political environment, national security policy imperatives and likely operational commitments. Issuance of defence planning guidelines with well defined objectives flows from the said review. Thereafter, a defence capability plan defining capabilities required to be achieved by the armed forces to achieve the laid down objectives is formulated. To attain the capability in the specified time horizon, a long term perspective plan is drawn. It entails identification of voids and surpluses as regards defence systems and equipment. Whereas voids are filled with new acquisitions, surpluses are disposed off in a manner most beneficial to the country.
Defence equipment may be declared surplus for one or more of the following reasons:-
•A revision of strategic planning and operational doctrine may render its use redundant.
•The quantity/number held may exceed forecast requirement.
•Equipment may be nearing obsolescence and is planned to be substituted by technologically advanced replacements.
•Cost of upgradation or extension of service life may not be considered a cost-effective option for envisaged usage.
Equipment declared surplus does not mean that it is totally worthless and fit to be converted into scrap. Duly refurbished and upgraded, most equipment can be put to effective use by other countries for their envisioned operational requirements. Such an approach makes immense political, economic and military sense for the following reasons:-
•It is a highly cost effective option for a country which is struggling to graduate to bigger roles. Old equipment is generally available at a highly depreciated value which may be a fraction of the cost of equivalent new equipment.
•It exposes the buyer country to the hitherto unfamiliar and inaccessible equipment, its design, functioning, maintenance and a host of related technologies. Additionally, considerable spin-off benefits accrue to the indigenous defence R&D.
•The buyer country gets the benefit of learning employment doctrines, operational exploitation and deployment procedure. In the case of USS Trenton, Indian and the US naval personnel spent nearly six months together at sea and in port to enable Indians to learn all aspects of its functioning and operations.
•It provides hands on training to the buyer country and prepares its manpower to be ready for more advanced equipment. Moreover, such equipment invariably comes with detailed training literature and aids. Experience gained by the seller country gets passed on to the buyer country.
Therefore, it is unfair to criticize the Government for the US warship deal just because the warship is 36 years old. The US has not discarded all ships of the same class and continues to have six of them in its navy at present. It is seriously contemplating their refurbishment to prolong their service life. INS Jalashva will serve India for a few decades and provide invaluable training to the Indian Navy in operating and employing a large ship of this class. It will also give a stratospheric jump to India’s knowledge as regards conduct of amphibious and expeditionary operations.
Acceptance of Restrictive Clauses
The US has always been apprehensive of its exported defence equipment being employed in a manner inimical to its interests. Such concerns have forced the US Government to put in place a tight regulatory framework under the Arms Export Control Act (AECA) and the Foreign Assistance Act (FAA). The US Government has been tasked to ensure that exported defence articles/services are used by the recipient nations strictly as per the initially stated intent. Additionally and more importantly, Section 40A of the AECA mandates that end-use of defence articles and services which are sold, leased or exported must be monitored by US security agencies.
The US exports military equipment and services through two main routes - Direct Commercial Sales (DCS) and Foreign Military Sales (FMS). Though subjected to the same licensing regime, both have their distinct monitoring provisions. All DCS cases are subjected to “Blue Lantern” programme which was initiated in September 1990 by the Department of State. It entails pre-licence scrutiny and post-shipment checks to ensure compliance of contract provisions. Special attention is paid to the export of certain sensitive technologies like night vision devices, cruise missiles, remotely piloted vehicles and electronics.
Under FMS sales (USS Trenton has been purchased through this route), the buyer nation forwards a Letter of Request to the US Government. If the request is cleared, a Letter of Offer containing all terms and conditions as dictated by the US laws for acceptance by the buyer, is sent to the requesting Government. It is a non-negotiable document. The buying Government is required to submit a Letter of Acceptance. All FMS agreements are overseen by “Golden Sentry” EUM programme which covers the complete spectrum of activities from initial delivery to final disposal. It is generally called ‘cradle-to-grave’ monitoring.
Under “Golden Sentry”, all exported items are categorized and tracked by their serial number on a country by country basis. The programme is designed to provide assurance that the recipient is complying with the US Government regulations. Regular monitoring prevents diversion or misuse of sensitive technologies. It also ensures that the host nation does not acquire technology through reverse engineering and other means.
The US Government is within its rights and fully justified in ensuring that its technologically-advanced equipment is not used in a manner detrimental to the perceived US interests. Therefore, all export contracts, irrespective of recipient nations, contain these stipulations as standards terms of sale. There is no small print. It is for the buyer nation to accept the equipment with restrictive clauses or to decline the deal.
In the case of USS Trenton deal, many observers have also objected to the restriction on the warship’s use in offensive operations. It is a highly blown up and extraneous concern. AECA and FAA require that defence articles and services can only be transferred to countries and international organisations for purposes of internal security, legitimate self defence and regional security arrangements. It is a very wide spectrum with unlimited possibilities and multiple interpretations. During his visit to India in March this year, US Secretary of Navy Donald C Winter tried to allay Indian apprehensions and said, "There are no limits on the use of the warship by a sovereign nation in support of its national defence objectives." Even offensive operations are required to be carried out in support of legitimate national defence objectives. Hence, India can employ the ship in all justifiable roles. In any case, India does not covet other’s territories and will never launch operations against another country unless duly invited by a legally constituted government for assistance, as happened in Maldives in November 1988. As India and the US are unlikely to be adversaries in the foreseeable future, one cannot imagine a scenario in which India may employ INS Jalashava in a manner inimical to the US interests.
Performance Audit by CAG
CAG carries out performance audit as per Chapter 7 of Regulations on Audit and Accounts – 2007. Performance Audit has been described as an independent assessment or examination of the extent to which an organisation, programme or scheme operates economically, efficiently and effectively. It assesses economy (acquiring equal-quality resources at least cost), efficiency (maximizing output for a given set of resource inputs) and effectiveness (extent to which objectives are achieved by a scheme, programme or organisation). In other words, the role of CAG is limited to ascertaining financial propriety, fiscal discipline and adherence to procedures.
CAG has done India proud by highlighting inadequacies of the procedure and imposing caution on the functionaries. But in the case of the procurement of the US warship, CAG has unjustifiably stepped into the domain which is outside its charter and competence. It is quite inappropriate and out of place for CAG to comment on need to procure a particular defence asset. It is for the Cabinet Committee on Security to consider national security imperatives to determine such issues. Moreover, major defence procurements are invariably influenced by a large number of inter-related factors including foreign policy considerations. Just because INS Jalashava is 36 years old, it does not make it a bad buy. No objections were raised when India bought HMS Hermes of 1953 vintage (since named INS Viraat) from the UK in 1986. If that logic is accepted, purchase of fire ravaged aircraft carrier Gorshkov from Russia may be termed as a bigger blunder. As regards restrictive clauses, these pertain to operational exploitation of the ship and fall totally outside the purview of audit. Moreover, understanding reached between the US and India with respect to the application of these clauses is not known in public domain and hence cannot be commented upon.
There is no reason for India to be unduly worried as imposition of these clauses is universal in its application. EUM programme is neither antagonistic in its objective nor is it India-specific. It contains empowering provisions which can be invoked, if the situation so necessitates. The US Government does not apply all stipulations across the board in all cases. It is aware that EUM visits handled with insensitivity can invoke negative sentiments and affect relations adversely. It has, therefore, been making extensive efforts to dispel all apprehensions of the buyer nations and make these visits least intrusive. Most of the nations appreciate U S concerns and are ready to cooperate.
India has been fully aware of the US laws and has accepted EUM oversight as a legitimate US instrument to safeguard its interests. It may come as a surprise to many, including CAG, to learn that purchase of Weapon Locating Radars in 2002 and the recent contract for six Hercules aircraft also come under EUM regime. Moreover, in case India decides to opt for the US fighter aircraft (F16/F18) or the Bell helicopter, EUM provisions will remain applicable. In case India is disinclined to accept these restrictive clauses, it will have to do without US defence equipment.
Of late, there has been a proclivity for smelling a rat in all defence deals. It is unfair to look at every defence deal with suspicion and find non-existent faults. It is not for CAG to question the wisdom of buying a used warship or accepting restrictive clauses. These are the issues which are best judged by the policy makers. CAG will do well to restrict itself to ensuring financial prudence and adherence to the laid down procedures. Moreover, it ought to be more careful and exercise due caution while commenting on defence deals. Even casual, ill-advised and injudicious remarks provide a handle to the critics to assail the Government. Worst, such inappropriate and irrelevant observations demoralize government functionaries, dent credibility of the system and cause immense damage to the national psyche. The end result is slow decision making, surrender of defence funds and tardy modernization of the armed forces.
About Author – Major Gen Mrinal Suman is India’s foremost expert in defence procurement and procedures and offsets. He heads Defense Technical Assessment and Advisory Services Group of CII.