July 8, 2009 / 10:26 AM / 10 years ago

India's $30 bln defence plan hampered by graft scandal

By Bappa Majumdar

NEW DELHI, July 8 (Reuters) - An arms corruption scandal is threatening to delay India’s $30 billion plan to modernise its military to counter security threats on its borders, official said on Wednesday.

The scandal, involving seven companies being investigated for paying bribes to win contracts worth $2 billion, has revived memories of the Bofors arms procurement affair that contributed to the Congress party’s defeat in an election in 1989.

On Wednesday, India’s defence minister told parliament that the government was reviewing procurement procedures and had halted all of the deals involving the seven companies, which relate to artillery, ammunition and weapons control systems.

"It is perhaps the biggest corruption scandal in defence deals in India," said Harsh Bhal, spokesman for India’s Central Bureau of Investigation (CBI). "It is a huge investigation and could take lot of time to get to the bottom of the scam."

The companies under investigation are one each from Israel and Poland, two from Singapore and three from India.

India is one of the world’s biggest arms importers, and the Congress-led government plans to spend more than $30 billion on defence upgrades over the next five years to counter potential threats from Pakistan and China.

"The armed forces are in urgent need of modernisation, but this scam will cause further delays in weapons induction," Uday Bhaskar, director of the National Maritime Foundation, a New Delhi-based defence think-tank said.

Last November’s Mumbai attacks, in which 10 gunmen killed 166 people in Mumbai in a three-day rampage, gave further impetus to India’s need to plug security loopholes and acquire modern weapon systems to tackle growing militancy.

The military had planned to buy 140 modern artillery cannons from one of the companies involved.

"We will wait for the CBI to finish investigations and are not looking for alternatives at the moment," defence ministry spokesman Sitanshu Kar said.

In May, the CBI arrested a senior defence official for bribery and has indicated that more arrests could follow in the case.


Analysts say the Congress-led government is wary that opposition parties could make the arms scandal an issue.

In the mid-1980s, India’s Gandhi family was accused of favouring an Italian businessman in connection with the delivery of the $16 million Bofors guns to the army in what was then the biggest corruption scandal to hit the Congress party.

"The Congress headquarters is already worried that the shadow of the Bofors scandal could come back to haunt them.... They don’t want to hand over an issue to the opposition on a platter," political analyst Kuldip Nayar said.

The government is separately negotiating for the purchase of 126 fighter jets in a deal valued at $10.4 billion.

Boeing’s (BA.N) F/A-18 Super Hornet, France’s Dassault Rafale, Lockheed Martin Corp’s (LMT.N) F-16, Russia’s MiG-35, Sweden’s Saab (SAABb.ST) JAS-39 Gripen and the Eurofighter Typhoon, produced by a consortium of European companies, will all soon take part in field trials to decide the contract. (Writing by Bryson Hull, Editing by Sanjeev Miglani)

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