The Honeymoon Is Over, Brace For Darker Days Ahead

For a country with the world’s third-largest standing Army, seventh-largest Navy and the fourth-largest Air Force it should not come as a surprise when, from time to time, there are cases of financial misappropriations or alleged kickbacks associated with military procurements undertaken to sustain the armed forces’ force modernisation efforts. But what is undeniably surprising is that almost all the procurement scandals that have come to light thus far since the early 1980s have involved Western companies such as Sweden’s Bofors Defence (now part of BAE Systems) and Germany HDW (now part of Germany’s TKMS). Despite the fact that more than 70% of the armed forces’ operational weapon systems have since the early 1980s been imported from the former Soviet Union (USSR) and its successor state, the Russian Federation (in total, from 1960 till 2000, the USSR and Russia supplied India with almost $35 billion worth of military hardware), there has never been even a single recorded or revealed case of questionable purchases of weapons by the Ministry of Defence (MoD) from either the USSR, or Russia, or other former East Bloc countries like Poland, Bulgaria, the Czech Republic, Slovakia, Kazakhstan, Uzbekistan, Ukraine or Belarus. That is until six years ago.

The first ever revelation about alleged kickbacks received by senior MoD officials, including a Defence Minister himself, as a quid pro quo for purchasing weapons from the erstwhile USSR appears in the book titled ‘The Mitrokhin Archive, Volume II: The KGB and the World’, published by Penguin/Allen Lane. The book opened a Pandora’s box not only about the nature of bilateral relations between India and the erstwhile USSR between the 1950s through to the late 1980s, but also throw some light on how military-industrial cooperation between the two countries and India’s defence procurement practices throughout the 1970s and 1980s, both marked by a remarkable degree of opacity during this period, climbed to dizzying heights. The book, jointly written by Vasili Mitrokhin, a former senior archivist of the USSR’s civilian intelligence agency, the KGB, and Cambridge University Professor and intelligence historian Christopher Andrew, is a sequel to the whistle-blowing Volume I that was published in 1999 (detailing the KGB’s operations conducted in the West between 1917 and 1991) and has since been appreciated worldwide for the authoritativeness, quality, minutae and detail of the information copied over a 12-year period from thousands of top-secret KGB files by Mitrokhin, who defected to the UK after the USSR collapsed in 1992. Volume II deals with the KGB’s attempts to ‘communise’, ‘Sovietise’, make friends and influence people in the developing world, and two of its chapters reveal how in the 1970s India was one of the countries most successfully penetrated by the KGB, how and why India became a model of KGB infiltration of a Third World government in the 1980s, and why the KGB ‘residency’ in Delhi was one of the largest in the world outside the Soviet bloc, and was awarded the rare honour by the Centre (KGB HQ in Moscow) of being promoted to a ‘main residency’. The most significant revelation, as far as military hardware procurements from the erstwhile USSR go, is that India’s Defence Minister V K Krishna Menon in the mid-1960s was successfully persuaded to buy MiG-21PF (Type 74) interceptors instead of the English Electric Lightning for the Indian Air Force (IAF), and in return his general election campaigns in 1962 and 1967 were KGB-funded.

Yet, despite such authoritativeness, caution would be well-advised here. For while it is generally appreciated that the Soviets were extremely active in trying to influence Indian ‘intellectual opinion’ between the 1950s and 1980s, Volume II reveals only a part of the whole story. And this is because the KGB constituted only a part of the gigantic Soviet information-gathering apparatus that in a country like India also had several personnel and ‘indigenous high-value assets’ working in parallel for/in the payroll of other Soviet agencies such as the GRU (military intelligence), accredited Soviet mass media agencies such as Izvestia, ITAR-TASS, Novosti and Pravda, and most importantly, the Delhi-based Trade Representative’s Office that reported to the USSR’s Ministry of Foreign Economic Relations, which in turn was the sole Soviet government organ responsible for marketing and supplying weapons of Soviet origin to 76 countries, including India. To gain a comprehensive appreciation of the former USSR’s ‘intellectual penetration’ of India and its consequences as far as Indian military hardware procurements go, it is best to start with trying to find out where India found itself in the Soviet scheme of things. The USSR began engaging India seriously soon after the Sino-Soviet split in the early 1960s and took India seriously since the late 1960s because it had global interests, notably a definite military threat from the People’s Republic of China (PRC) and a desire to reduce the US influence in the subcontinent. This was the only basis for the India-USSR relationship, which acquired a strategic dimension in August 1971 when both countries inked the India-Soviet Treaty of Peace, Friendship, and Cooperation and consequently both countries got what each wanted—the USSR achieved strategic encirclement of the PRC while India got:

* A credible but limited duration nuclear umbrella to discourage and even neutralise any Chinese military adventurism targeted against India in the event of a future round of India-Pakistan military hostilities.

* The much-needed diplomatic support from the East Bloc at the UN Security Council as well as the crucial military hardware-cum-war wastage reserves required to successfully undertake the 14-day ‘Lightning Campaign’ that resulted in the dismemberment of Pakistan and the birth of Bangladesh in December 1971.

Between 1972 and 1975 there were no major procurements of USSR-built military hardware by India, and the Soviets were quite happy to keep India engaged (and simultaneously keep the PRC strategically encircled and contained) by offering sops like the bilateral rupee-rouble trading system (despite this, non-military trade was never a high point of India-USSR relations), supporting India’s indigenous space technology development projects, and continuing the off-the-shelf supply of weapons like MiG-21M/bis combat aircraft and Mi-8T utility helicopters. These geo-strategic imperatives, however, began undergoing a sea-change when the Indian National Congress led by the then Prime Minister Mrs Indira Gandhi lost the 1976 general elections to the Janata Party. At around the same time, the Indian Army, Navy and Air Force were gearing up to undertake a gigantic, 10-year-long phased force modernisation effort that called for the procurement of big-ticket items like deep penetration strike aircraft (DPSA) and medium multi-role combat aircraft (M-MRCA); principal surface combatants like guided-missile frigates (FFG), guided-missile destroyers (DDG); single-hulled diesel-electric submarines (SSK); main battle tanks (MBT) and infantry combat vehicles (ICV); mobile air defence artillery systems, 155mm/39-calibre towed field howitzers; attack and utility helicopters, plus tactical and strategic transport aircraft.

For obvious reasons, alarm bells must have started ringing in the Kremlin in 1978 when the Janata Party government led by the KGB’s bete noire (Prime Minister Morarji Desai) signed a contract with British Aerospace (now BAE Systems) for the purchase of 120 SEPECAT Jaguar IS/IM DPSAs. Next on the list were MBTs for which the Army had shortlisted contenders from France, Germany, and the UK; ICVs for which Army HQ wanted to evaluate French and German offers; the M-MRCA for which Dassault’s Mirage 2000 was the preferred choice, and single-hulled SSKs for which Kockums of Sweden and HDW of Germany were the preferred suppliers. What made matters far more complicated for the Kremlin was India’s attempt to normalise relations with the PRC in the post-Mao Tse-Tung era, while for Delhi the USSR’s inability to prevent Beijing from ‘teaching a lesson’ to Hanoi (by being unable to avert the Sino-Vietnam War of February-March 1979) revealed the true limits of Soviet politico-military power projection. And what was also not known then to India as well as the West was the USSR’s plan to undertake the invasion of Afghanistan in the fall of 1979 despite the steadily deteriorating economic situation of the Warsaw pact member-states. By 1980 the Warsaw Pact countries were collectively importing 110 million tonnes of crude oil to satisfy internal requirements even though the USSR was by then the world’s largest producer of crude oil and the second largest gold producer. What made matters far worse for Moscow were efforts made by the West led by Reagan Administration to irreversibly cripple the Soviet economy into a state of perpetual decline by forcing the USSR to increasingly to borrow from the West.

For the Kremlin, therefore, it must have come as enormous relief to see Mrs Gandhi being elected as Prime Minister for a third term. And this is where the mystery deepens and the ground gets murkier. For, despite the known limitations and decline of Moscow’s economic/military prowess, the MoD, without any fanfare, in May 1980, inked a $1.6 billion weapons procurement agreement with the USSR (at concessionary terms of 2.5% interest rate) and also followed Moscow in establishing diplomatic relations with the Vietnam-installed Cambodian government of Heng Samrin. This was followed by another gigantic contract signed in 1981 for procuring weapons worth $2.5 billion, followed by yet another contract in 1984 worth almost $3 billion, despite the latter two deals proving to be a heavy burden for the Indian economy, and becoming the main reason why India applied for a $5.65 billion loan from the International Monetary Fund (when the USSR collapsed, New Delhi’s debt to Moscow was estimated at $16 billion, including interest, thanks to the rupee-rouble trading practice). As a consequence of all this, at least three major Indian force modernisation plans mutated to the following:

* Instead of the IAF acquiring a single M-MRCA, the requirement was broken down to an astonishing five aircraft types—49 Mirage 2000H/TH M-MRCAs were ordered in 1984, while 95 MiG-23BNs and 50 MiG-27Ms were imported off-the-shelf between 1981 and 1986 (and another 165 produced in-country between 1983 and 1997) to serve as tactical air support aircraft, and 40 MiG-23MFs and 50 MiG-29B-12s were procured in 1983 and 1986 directly from the USSR as dedicated air superiority combat aircraft. The clinching argument in favour of these procurements was then spelt out by the Soviets to a gullible MoD as: quantity has a quality of its own!

* Against all logic the Navy’s SSK procurements were broken up among two parties, with the single-hulled SSKs procured being the four Class 209/Type 1500s from HDW, along with their advanced, prohibitively expensive licenced-fabrication facilities and intellectual property rights since 1982, while at the same time eight double-hulled Type 877EKM Kilo-class SSKs were procured off-the-shelf from the USSR. This led to avoidable and wasteful expenditures incurred for creating from scratch two parallel types of on-shore infrastructure for SSK training and maintenance.

* The Indian Army, which wanted to acquire a MBT incorporating hit-survivability design features (something that the home-grown Arjun Mk1’s design strongly signifies), from late-1982 became surprisingly reconciled to acquiring some 1,900 T-72M/M1s that incorporated hit-avoidance features. This despite the fact that by late 1980 when the Army conducted field trials of the T-72M it found out to its utter horror that basically, with the exception of the T-55, the overall Soviet approach to MBT design in the post-World War II era was found to be flawed on two major counts: namely, the gamble on not being hit rather than on surviving hits, and the refusal to perceive survivability of the tank crew as a quite distinct issue from survivability of the vehicle, with the former having priority over the latter. The Indian Army got a first-hand demonstration of the T-72M’s acute vulnerability in October 1987 when LTTE guerrillas exploded improvised explosive devices underneath two T-72Ms deployed with 65 Armoured Regiment for Operation Pawan during the battle for Jaffna, blown off.

The rest, as they say, is history. The collapse of the Soviet Union reduced India’s military preparedness to a parlous state throughout the 1990s, thanks to the one-sided weapons procurement policies initiated in the early 1980s. The present UPA government led by the Congress (I), the very party that inked some of the highly questionable arms deals with the erstwhile USSR more than two decades ago, is eminently qualified to explain exactly what ‘enlightened national interests’ prompted the MoD to embark upon such a one-sided and disastrous defence procurement policy, even if it is for posterity.

But back to 1991, when the High Commission of India in Singapore began using the island-state’s banks to borrow for the short-term to clear India’s outstanding bills. It was in the midst of all this that India’s then Union Minister for Finance Dr Manmohan Singh and the then Union Finance Secretary Dr Montek Singh Ahluwalia flew in to Singapore on October 19, 1991, to beg for FDI inflows from the ASEAN member-states, and were staying at the four-star Imperial Hotel. They were joined by the then Union Commerce Minister P Chidambaram and Union Power Secretary Ms Geeta Krishan, who were tasked to obtain financial assistance for pitting up the ENRON gas-fired power generation plant in Dabhol, which World Bank had refused to finance. The  duo of Dr Manmohan  Singh and Dr Montek  Singh Ahluwalia  had earlier gone to Bangkok earlier  to seek  an urgent  loan of $2.2 billion at the  World Bank-IMF  Board of Governors meeting  held from October 15 to 17, 1991. India was saved by two developments then:

* A $ 2.3 billion standby loan provided by the IMF for 1991-1992 and $3 billion for 1992-1993, with India being required to undertake mandatory structural economic reforms as a pre-condition.    

* Since India had run out of foreign exchange reserves in 1991, it was decided to ferry-fly the country’s gold reserves of some 24 tonnes out to Switzerland’s UBS Bank as part of a collateral-based borrowing scheme. Surprisingly, the Union Finance Ministry had at that time refused to entertain Deutsche Bank’s offer to supply a basket of currencies while retaining the country’s gold reserves at the RBI’s HQ in Mumbai as collateral. Why this offer was refused has not been explained by anyone till this day.

Which, then, brings us to present times, when India’s current account deficit is out of control, the Rupee has plummeted 20% (which in turn resulted in Indians investing in imported gold at ever-increasing levels), and the country’s imports have zoomed. FDI inflows too have dropped dramatically since the Mauritius route (that the late Mrs Indira Gandhi had started in 1983) for round-tripping has now dried up, thanks to the GAAR retrospective taxation scheme (a consequence of the case between Vodapone and the GoI) and the non-acceptance of residence certificates of Mauritius.