The previous Government's blacklisting policy was stated to be a hindrance to timely imports of defense hardware and ongoing acquisition projects. The policy has also led to diplomatic disagreements with South Africa and Israel after the previous government banned their companies Denel and IAI.
Under the new policy, likely to be approved soon, only the company directly accused of bribery or kickbacks will face punishment. Other companies will be free to participate in bids for defense equipment.
"If I have a platform where the company has been banned, I can't stop operating that platform as the supplier is now blacklisted. So whose loss is it? You have to see national security considerations and not resort to knee-jerk reactions," rationalized Defense Minister Manohar Parrikar. He heads the Defense Acquisition Council (DAC) which will approve the new policy soon. The establishment has extensively deliberated on the policy, said sources.
The new policy is likely to have clauses to exempt errant companies from being blacklisted if national security considerations necessitate continuation of the project. The government has already done this on a very selective basis. But such instances have been rare and the overall blanket ban policy tends to jeopardize crucial deals such as torpedoes for new submarines because another group company of the same defense conglomerate has been banned after the surfacing of allegations of bribery.
Amit Cowshish, a former Financial Adviser to the Ministry of Defense, backed the proposed changes. "There is surely a need to adopt a more pragmatic approach to blacklisting. It (removing blanket ban) will be good if it happens. Blanket blacklisting has far-reaching implications for defense acquisitions. It could disrupt an ongoing contract, depriving the armed forces of the equipment being procured. Considering inter-dependencies of equipment manufacturers, it could also impact other unrelated acquisition programs."
Sources say that the new policy will ban a foreign entity or agent, if found guilty of bribing Indian officials, from dealing on behalf of the company or its subsidiary. Moreover, the blacklisting will be product-specific.
"Blanket blacklisting policy generally restricts competition in respect of future procurement as there are anyway very few original equipment manufacturers in the world," says Cowshish. Generally there are no more than four to five equipment makers who largely integrate specialized parts produced by niche companies.
Currently, the Indian government has banned 15 defense suppliers, including some major foreign defense firms, due to corruption and bribery charges.
