In Defence of indigenisation

The powers-that-be might demur, and demur vigorously, in innocent protestations, but they cannot wish away the perception that ministries offering import possibilities are the most sought-after by them.

Be it Defence procurement or the earthy coal or the billowing power equipment, all of them offer those who dispense favours to foreigners, the luscious prospect of kick-back through over-invoicing. Yes, over-invoicing. That hurts the most: That foreign companies have the gall to pay bribes with our own taxpayers’ money. It is like consultants who borrow your watch to tell you the time and bill you for it!

The inflated bills are paid by the government and the excess credited in the names of specified beneficiaries, preferably in numbered Swiss bank accounts, or more brazenly upfront in clandestine bank accounts in bizarre places, happy and willing to hide slush money. The bulk of such money ultimately finds its way back home for political parties to splash.

Over-invoicing and its adjunct, kickback, are the worst form of treachery, though like other sophisticated financial crimes, it is layered so as to confuse the investigators, and appears unctuously benign.

Indigenisation to the point of practising the seemingly irrational autarky perhaps holds the key to curbing kickbacks in foreign currencies. Foreign manufacturers bend over backwards to bag contracts from developing nations, and for this they can stoop to any low.

Indigenisation, the antidote

After all, they have to keep their factories going. And back home, they have exhausted their markets and repeat orders are not on the horizon. Pliable dictators and corrupt politicians and bureaucrats of developing nations lend themselves admirably in filling the void for these companies.

Critics might turn around and say that kickbacks can be obtained even from Indian companies and the extra payment gotten back and deposited in distant shores through subterranean channels, that is, the hawala route.

But discretion is more forthcoming from foreign suppliers than the indigenous ones who might sing like a canary when pressured and squeezed. And, then, the bogey of quality is also raised, almost as a reflex, as a factor against indigenisation.

Indian companies — both in the public and private sector — are not capable of producing quality goods demanding cutting-edge technology, is the general refrain. This often turns out to be an alibi for inaction and perpetuation of self-aggrandising imports. A country which can produce nuclear submarines and missiles can surely produce the most elementary of Defence wares — guns. We prefer to idle our own Bharat Heavy Electricals and import from makers of power equipment of foreign vintage, not being mindful of quality, the ostensible reason, but with a view to lining our own pockets.

The offset clause in Defence procurement contracts enjoining on the foreign suppliers to source at least 30 per cent of the imports in future from Indians has now been reduced to a mockery, what with foreign companies just going through the motions of indigenisation for fear of parting with closely guarded technologies.

In the event, the offset clause is fulfilled through palming off of innocuous civilian contracts like making of seats, cushion covers and other upholsteries.

Indigenisation can also be ushered in through the FDI route. If a Defence or power equipment indeed calls for the state-of-the-art technology lacking in India, the Government can invite the foreign company in question to join it as an equal partner. That way indigenisation effort would get a leg-up and the pernicious practice of kickbacks would be tamed considerably.

Besides, FDI, as is well known, is any day preferable because it brings in not only new and better products but also generates employment opportunities to the countrymen, besides shoring up governmental revenues. Of course, there may be situations where foreign companies may be reluctant to set shop in India for a variety of reasons, including the fear of their technology being stolen.

In such situations, we have to grin and bear it — imports have to continue apace willy-nilly especially if they are unavoidable.

When hostilities break out…

Governments of foreign countries whose companies are involved in the wink-wink nudge-nudge practice of over-invoicing and kickbacks, generally wink at these shenanigans. Hence, there is no way lids can be blown off such contracts in the immediate future.

Hostilities, however, break out during election eve and when there is a change of guard. And such hostilities bring to light the shenanigans of foreign companies in cahoots with Indian politicians and bureaucrats harking back to a distant past.

The point is, our own system is out of its depths in ferreting out such scams, whose ground zero is in the distant shores.

With the fig leaf of superior technology coming handy, the importing ministry can always justify the higher payments inevitable in kickbacks, till such time someone spills the beans abroad.

(The author is a New Delhi-based chartered accountant.)

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