(adds details from Italian sources, context)
By Frank Jack Daniel
NEW DELHI, Feb 18 (Reuters) - India's Prime Minister Manmohan Singh said on Monday his government had nothing to hide in a $750 million deal for AgustaWestland helicopters that the defence ministry is threatening to cancel over allegations of kickbacks.
The ministry has asked AgustaWestland, owned by Italy's Finmeccanica, to show by Friday that no bribes were paid in the deal or face cancellation of the order.
AgustaWestland has said it will comply with the request to provide clarification within seven days.
The case, which escalated last week with the arrest of Finmeccanica head Giuseppe Orsi, is putting pressure on India's government and has become a political issue in Italy less than a week from a general election.
India has already received three of the 12 helicopters it bought to transport political leaders.
In his first comments on the affair since the arrest of Orsi, who has since been replaced at Finmeccanica, Singh said the Indian government wanted to debate the issue in parliament, which begins a new session on Wednesday.
"Parliament is the appropriate forum to discuss all issues raised by the opposition. We are ready for any discussion," Singh told reporters. "We have nothing to hide."
The furore over the helicopter deal follows a string of graft cases that have buffeted Singh's government, which faces elections due by early 2014. The opposition is expected to raise the issue once parliament opens.
An Indian Defence Ministry official said the decision to send a show cause notice to Finmeccanica, the first step toward scrapping the deal, was taken partly to fend off expected political pressure in parliament.
Pressure is building in Italy too, where the Finmeccanica case adds to a string of high-profile corporate probes into possible bribery reminiscent of the scandals that devastated Italy 20 years ago.
State-controlled Finmeccanica, Italy's second largest employer after Fiat, could be blacklisted for several years in India if the government scraps the deal, potentially putting at risk some $12 billion in defence contracts being chased by the Italian defence group.
India's Central Bureau of Investigation (CBI), which began a probe of the deal after Orsi's arrest, is due to send an investigator and a judicial officer to Rome this week along with Arun Kumar Bal, a senior official overlooking acquisitions at the Defence Ministry. The team is due to meet Italian prosecutors, the CBI said.
The team's goal is "to gather as much evidence as possible relating to the allegations of corruption", said ministry spokesman Sitanshu Kar.
However, an Italian judicial source with direct knowledge of the situation told Reuters that prosecutors in Busto Arsizio, the northern town where the AgustaWestland probe is being conducted, had not been contacted by Indian authorities.
Finmeccanica had also not been contacted by the Indian delegation, a company source told Reuters.
Italian prosecutors allege Orsi employed three middlemen to channel millions of dollars to Indian officials, including to former Indian air force chief S.P. Tyagi, to manipulate the tender in a way that favoured the Italians.
Orsi's lawyer said last week the Italian corruption probe has produced no evidence of any illicit payments.
Indian officials involved have defended the change and deny corruption.
Tyagi has denied all wrongdoing, as has his cousin, Sanjeev Tyagi, who Italian prosecutors allege set up meetings between the company and the air chief. (Additional reporting by Jo Winterbottom Satarupa Bhattachrjya and Annie Banerjiin New Dehli, Emilio Parodi, Lisa Jucca and Danilo Masoni in Milan, Writing by Frank Daniel and Lisa Jucca,; Editing by Raju Gopalakrishnan and Jeremy Laurence)