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Liberalised Blacklisting Norms for Defence Procurements

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November 22, 2016

Why in news?

The government introduced new liberalised blacklisting policy for arms companies in its ‘Guidelines of the Ministry of Defence for Penalties in Business Dealings with Entities’.

Why liberalisation was necessary?

  • The blacklisting of companies in the past have heavily impacted the modernisation of our military. Some examples are –
  • Bofors Howitzers scandal and subsequent blacklisting led to derailment of the plans for technology transfer and indigenous manufacture. Army has not inducted a a single modern artillery gun in the last 30 years.
  • HDW Submarines Scandal led to the loss of the expertise gained in the construction of diesel-electric submarines and the delay in the induction of new subs.
  • VVIP Helicopter scandal led to the situation of President & PM without any modern/secure 3-engine choppers.

What are the new norms?

  • The new rules will apply to both Indian and foreign firms and agents or employees of companies found to be directly involved in the corrupt act
  • India will now be open to doing business even with a banned firm if there is no alternative available to its weapon system or equipment in the market.
  • This will be allowed, on the grounds of national security, operational military readiness and export obligations.
  • It will be allowed after the vice-chief of the Service concerned (Army, IAF or Navy), the chief of the integrated defence staff or the additional secretary (defence production) signs a certificate to that effect and gets permission from the "competent authority" (the Defence Minister).
  • It also makes it clear that India will no longer impose blanket bans for 10 years on erring. The earlier wholescale bans, of course, often proved counter-productive by derailing military modernisation projects.
  • Foreign companies will initially be suspended for six months if the defence ministry feels that allegations of corruption against them are serious. This ban will be reviewed every six months and would in most cases not extend beyond a total period of five years.
  • With a review of the suspension order being undertaken within six months, the defence minister will decide if the subsequent period of suspension has to be extended by six months at a time.
  • Banning of business dealings may be ordered only on the following three grounds,
    • if a company accepts its misconduct,
    • the CBI files a chargesheet against it or
    • a court or tribunal finds it guilty.
  • This ban period will not be less than five years for the following grounds,
    • if there is violation of the pre-contract integrity pact,
    • the company is found resorting to corrupt practices,
    • unfair means and illegal activities during any stage to bag a contract, or
    • if national security considerations warrant the step.
  • But the ban period will not exceed three years for "non-performance or under-performance" or any other ground required in "public interest".
  • The company with which business dealings are suspended or banned will, however, be allowed to take part in new tenders for spares, upgrades and maintenance for weapon systems supplied earlier.
  • The order of suspension banning of business with an entity may be extended to its allied firms only by a specific order of the defence minister.
  • The entity with which business has been suspended or banned will not be permitted to transact contracts under a different name or division.


Category: Mains | GS-III | Effects of liberalization

Source: Times of India

Author: Shankar IAS Academy Chennai - Best IAS Academy for UPSC Coaching


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