Bofors: Your Parents’ ‘2G’ Scandal

[Deletedid1]

Indian politicians and journalists were agog this week over the resurrection of the long-lived Bofors scandal, after an income tax tribunal passed an order saying that two folks (one of whom is dead) should pay tax on their alleged Bofors kickbacks, while at the same time the Central Bureau of Investigation was asking to have the case against one of them closed for lack of evidence.

Even after former Prime Minister Rajiv Gandhi’s assassination in 1991, the Bofors scandal continued to take a toll on his reputation.
We have a feeling that there are a lot of folks out there who have a sense that the Bofors scandal is (or rather was) important, but don’t have the foggiest about what it involved. That’s not surprising—at least half the country were babies then or not even born yet.

Think of it as your parents’ 2G—a major scandal that infuriated a public usually quite blasé about political corruption. Political observers say it was one of the reasons that former Prime Minister Rajiv Gandhi lost elections in 1989—a year that saw thousands of people on the street protesting the corruption of the Congress government and en masse resignations by the opposition.

And yet there are some important differences between the telecom spectrum allotment scandal of 2008 and the Bofors arms deal imbroglio: the scale, for starters. While a court deliberates over the CBI’s request, here’s a little refresher.

[b]What was the scandal?[/b] Here’s the summary from the tax order: “In 1987, a scam in purchase of defense equipments, known as the Bofors Scam was unearthed, indicating that in respect of the gun deal between M/s. Bofors, a Swedish company dealing in arms and ammunition and the Govt. of India illegal commission / kickbacks were paid by Bofors violating specific defense policies on which the deal was signed by the Govt. of India.”

The Indian government agreed in 1986 to buy 400 155mm Field Howitzers and related equipment from AB Bofors for about 14.3 billion rupees (around $1.4 billion then, or about $3 billion today), the order said. The Indian government made a 20% down payment in May that year. Then in April the following year, a Swedish radio station broadcast a story alleging that AB Bofors secured the deal through bribes.


[b]What was the cost to India?[/b] According to the Indian tax order, which cited Indian press reports about an official Swedish audit, AB Bofors made payments in the range of $29 million to $42 million to an Indian agent. Bofors denies paying bribes. In any case, how would bribes being paid by foreign firms hurt Indian taxpayers? The most likely cost to the Indians may have come from getting a more expensive deal (the alleged kickbacks probably got factored into the cost of the arms deal) or less suitable equipment than they might otherwise have got.

But it’s hard to put any kind of a number on the potential losses from going with the Bofors guns, rather than weapons from France’s Sofma, Britain’s International Military Service or Germany’s Voest Alpine. An Indian audit report in 1989 said tens of millions of dollars had been paid in bribes and criticized the government for entering into the deal, noting that the howitzers had failed field trials, according to a Los Angeles Times report of July that year.

In the case of the telecom scandal, an Indian government audit report put the potential cost from giving spectrum to firms at discounted prices at $40 billion though that is in revenue the government didn’t collect.

[b]Who’s Ottavio Quattrocchi?[/b] He was a chartered accountant who lived in India between 1965 and 1993. He was employed by an Italian oil refinery and pipeline builder called Snamprogetti, the order says. He was also close to Rajiv Gandhi and Sonia Gandhi.

The tax order says that he arranged for AB Bofors to engage the services of a U.K. firm to help secure the contract, and in return the Swedish armaments maker was to pay 3% of the contract value to the U.K firm. The order says that a payment made by AB Bofors to the U.K. firm was remitted through a series of accounts into one that was controlled by Mr. Quattrocchi.

India’s federal investigative agency, the Central Bureau of Investigation, tried and failed to extradite him to India. Mr. Quattrocchi has denied receiving any money from AB Bofors.

[b]Who was accused?[/b] Everyone. Most importantly, the man at the top. Sure, Prime Minister Manmohan Singh has been racked by allegations of presiding over a government riddled with corruption. But even those criticizing him are quick to add that they don’t think he’s personally corrupt, but rather that he failed to rein in the corruption of those around him. In the Bofors scandal, Prime Minster Rajiv Gandhi was personally accused of accepting bribe money to swing this arms deal, although he said he had never done so.

[b]Were there investigations into the scandal[/b]? Yes, the scandal was investigated by a joint parliamentary probe, the sort of inquiry the opposition Bharatiya Janata Party has been requesting for the 2G scandal. According to the tax order, the parliamentary inquiry cleared Mr. W.N. Chadha, whom the Indian tax department described as an agent for Bofors in India and on whom the agency has been trying to levy taxes for his alleged kickbacks. Other news reports from the time say the parliamentary probe findings appeared to be inconclusive, which may have stoked public anger further and led to the 1989 electoral defeat.