NEW DELHI — India may legalize the use of agents by foreign defense companies and establish penalties other than blacklisting when overseas firms violate rules, said a Defence Ministry source.

Announcement of the new policy will come by late February, the source said, and follows threats by AfterSouth Korea that it would no longer join India in threatened that it willnot sign any more defense programs after with India in view of New Delhi 'sput on hold decision to put on holda US $500 million mine countermeasures vessel (MCMVs) award, won by South Korea's whichKangnam Corp., after allegations that the South Koreancompany used ration(cq)of South Korea had won,because of alleged use ofdefense agents. Indian by the South Korean company,theDefense Minister Manohar Parrikar has since (cq)asked MoD officials in the Ministry of Defence (MoD)to legalize use of defenseagents for ofoverseas defense companies operating in India, said the MoD source.

a source in MoD.

It was during the fifth India-Korea Joint Defense Committee Meeting (JCM) in Seoul Nov.ember 17-18 that (cq), South Korean defense officials told their the Indian counterparts they were defense officials side that South Korea will not partner with India defense programs as it was it was angry over MoD's decision on the to put on hold the MCMVs deal. worth $500 million with Kangnam Corporation because MoD allegedly found Kangnam had taken the help of defense agents in the deal. Parrikar, who took over Nov.ember 10 as new defense minister, decided to resolve the agents issue, at the earliest, the MoD source said.

The fate of the MCMV deal to for the supply of eight minesweepers to the Indian Navy is still not known, said a diplomat of the South Korean Embassy.

Defense agents were banned in 1989 after allegations of kickbacks in a competition to acquire after alleged kickbacks in the purchase of howitzer artillery guns from erstwhile Bofors of Sweden. However, a senior MoD official said clear guidance has never been provided on who there has never been a clarity on who constitutes an agent. or a representative. Parrikar's decision to "sort out the issue of defense agents" is welcome and will ease hassles for overseas defense companies, the official said.

Parrikar has asked his bureaucrats to put in place a "clear cut" policy that which will "formalize and legalize the working of defense agents in India," the MoD source said.

A new policy will be announced by February- end that will formalize the operation of defense agents here and also work out a new system of penalties for faulting overseas companies rather than blacklisting them from doing business, the source added.

"The defense minister has a strong opinion against blacklisting overseas companies. Instead, he prefers to use other punitive measures against defaulters," the MoD official said. quietly.

Rahul Bhonsle, a retired Indian Army brigadier general and defense analyst, said, "Agents are not necessary if there is increased transparency and competency in acquisition managers. On the other hand, instead of agents, go

ernment should have original equipment manufactures [OEMs] nominated representatives approved for interaction with the MoD, technical managers, the Defence Research and Development Organisation


and others. This will ensure accountability as well as they will be responsible to the OEMs instead of agents, who will essentially be free-lancers of sorts."

In the last six years, the outgoing government blacklisted six defense companies on charges of alleged corruption allegations, which created resulted in shortages of weapons and equipment. supplied to Indian defense forces.

Denel of South Africa was blacklisted in 2005 on alleged use of agents in influencing defense procurement.

"While defense agents are operational in every defense deal, they work underground, often in garb of legal advisers," the MoD source said.

India does not officially allow defense agents and and takes an undertaking from overseas defense companies, when they file their bid, must agree not to at the time of filing their bid that they will not take the help of any agent.

But an executive of a domestic defense company said without being named that in practice, the ground reality is overseas defense companies employ agents to use political influence to swing deals while not officially admitting to the practice.the name of the agent who uses political influence to swing deals.

"India's Defense Procurement Procedures are cumbersome and subject to interpretation. Companies, not having a manufacturing base in India, find it difficult to maintain a big office set up in India. Agents having deeper understanding of the Indian procurement processes can help foreign OEMs to participate in the defense procurement process," said an executive of an overseas defense company. Ends