Defence scams and their impact on Indian Economy

Shoddy Defence deals and their impact

The Indian Army is known for their honesty, integrity and professionalism yet the stigma of corruption has touched the defence sector many a times. Starting from the Jeep scam to the Augusta Westland helicopter scam; taxpayer’s money has been spent on middleman, which could otherwise be utilised for improvement in the defence sector.

The money that goes in these deals in the form of kickback is recovered by these supplier companies by increasing the cost of equipments purchased. A Coffin which was priced at 172 $ was bought at 2500$. This extra money outflow from the company increases the import cost to the country and affect the current account deficit (CAD). This money can be recovered to reduce the substantial burden on the economy. For the perusal of corruption case a lot of time and money of the government is also wasted. The court proceedings in the Bofors scam burdened 250 crores rupees to the exchequer.. The result; no conclusive evidence was found against the offenders. The cost of court time and the delaying cost of other cases can only be speculated. The GNP of the country from the expenses side has a component of government spending. If the money that is lost from the economy can be recovered and invested in good investments, which leads to increased wages, increases consumption of goods and services, then the GNP will improve which in turn is a good indicator for economical growth.

To curtail the menace of corruption, various policy recommendations have been made. Offset production which is a measure to strike a balance of trade between two countries in which the seller agrees to buy 30 % of the foreign exchange value from the government. In a bid to bring structure and transparency to the procurement process, the Defence Procurement Procedure (DPP) was established in 2002 according to the recommendations of the GoM ( group of ministers ) committee which was also revitalised in its functioning by the recommendation of the Kelkar committee. In this period the DPP has facilitated the signing of offset contracts worth of 4.3 Bn $. Although most of the purchases in India are inter Governmental but there has been a gradual shift to the competitive pricing model like in the case of Dassaults Rafaele jets for the Air force. This will spur the domestic defence production too and chances of money out flowing will reduce.

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