NEWTOWN, Conn. - India's new right-leaning government of Prime Minister Narendra Modi has quickly moved away from the corruption-alarmist approach of the former leftist UMP regime in regards to blacklisting foreign firms at the first sign of tainted dealings. While former Defense Minister AK Antony was quick to restrict any foreign firm with even a whiff of corruption allegations leveled against it from bidding on Indian government contracts, the Modi administration has eased off from its predecessor's blacklisting-happy policy. Recognizing that banning so many major foreign firms - often for years and despite investigations routinely failing to turn up evidence of wrongdoing - has hurt India's military modernization drive, the new government has lifted the blacklistings of several foreign defense vendors, including, most recently, Finmeccanica and its subsidiary, AgustaWestland, on August 22.
Despite lifting the blacklisting on Finmeccanica, however, the government has stated that while it will honor existing contracts with the Italian company, it will not sign any new deals. Back in January the previous UMP government cancelled a $750 million (EUR556 million) deal with Finmeccanica to provide 12 AgustaWestland AW101 VIP helicopters to India. That contract was cancelled after Italian investigators had begun looking into allegations that the company had paid out bribes in order to win the VIP helicopter competition in 2010. Italian media has since reported that prosecutors suspect kickbacks of up to 10 percent of the value of the contract were paid out to Indian officials, thus swinging the deal in favor of the AgustaWestland option.
While blacklistings of foreign defense vendors had become the norm through the years - including Bofors, Denel (whose 9-year blacklisting was lifted on August 12), HDW (Howaldtswerke-Deutsche Werft) and Singapore Technologies to name just a few - the process has ultimately done little to aid India's procurement efforts. Instead, with one large competitor eliminated from the field the remaining contender(s) simply use the lack of competition to drive up their prices. Rather than blacklisting a suspected guilty vendor, a more common-sense approach might be to apply financial penalties agreed to in advance with the winning bidder as a stipulation of awarding a contract. But simply blacklisting a vendor and cancelling a contract outright has done little to aid India's military modernization process, which has largely remained stuck in the mud of decades.
The Modi government came into office offering a fresh approach to defense. Dealing with corruption and suspected vendors is just one of many different threads to untangle in the Gordian Knot that is India's procurement (and defense industry protectionist) process.
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