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Indian debarments may be crippling modernization

India’s practice of blacklisting defense firms that engage in corrupt activity has sparked debate over whether the practice has affected the modernization of the world’s fourth largest army.

This year alone, the government blacklisted four foreign armament firms after a top military official confessed to accepting bribes. The firms are: Singapore’s Singapore Technologies (ST) Kinetics Ltd, Switzerland’s Rheinmetall Air Defence, Israeli Military Industries Ltd, and Russia’s Corporation Defence (CDR). The firms are banned from conducting business with India for ten years.

Defense procurement remains the biggest priority and the biggest source of revenue outflow for a military that is keen on modernizing itself. However, the government’s move to blacklist major defense firms has made procurement difficult. The military has been forced to find other suppliers or resort to buying directly from governments — moves that experts say has slowed down not just procurement, but modernization. Some now argue that the long bans are too harsh and that financial penalties would suffice to prevent further corruption.

Despite these arguments, in a system where procurement is often plagued with corruption and in the wake of multi-million dollar scandals in coal mine allocations and 2G telecom licenses, moving to completely disallow corrupt elements seems to be the only way to stop the government from losing more money. While it may slow down procurement, it may be necessary to stem corruption from the source.   

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Melanie Lansakara is a researcher for the FCPA Blog members area.

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