NEW DELHI — India will not implement blanket blacklisting of foreign defense companies charged with corruption under a newly finalized policy that likely will be made public this month, said an Indian Ministry of Defence (MoD) official.

Since 2005, India has blacklisted six overseas companies from operating here in response to allegations of corruption while doing business in the country. Instead of blocking a business from defense deals, India will impose an economic penalty on the company.

The MoD official would not say if those companies already blacklisted will be allowed to participate in future defense projects after the new policy is enacted. However, the official did say the MoD is in favor of allowing those companies to participate in defense projects so long as they agree to deferred prosecution. The official would not expand on this approach.

The ruling government believes the blanket blacklisting policy, which was used by the previous United Progressive Alliance government, led to shortages of ammunition and artillery guns and hampered the acquisition process, according to the official.

"Blanket blacklisting has not been the only or even the main cause of shortages, but it cannot be denied that this has caused problems in the past in such diverse areas as manufacture of ammunition and import of air defense guns," said Amit Cowshish, a former financial adviser for the MoD.

Bhupinder Yadav, a retired Indian Army major general and defense analyst, was more specific: "The immediate impact of blacklisting has led to shortages of essential ammunition such as 125mm Fin Stabilized Armour Piercing Discarding Sabot, Bi-Modular Charge System for 155mm gun ammunition and anti-tank missiles, 30mm ammunition for Su-30 aircraft, [and] 23mm armor-piercing incendiary tracer."

Between 2005 and 2012, some defense companies, including Singapore Technologies Kinetics, Israel Military Industries (now known as IMI Systems), Germany-based Rheinmetall Air Defence, and Corporation Defence of Russia, have been debarred from doing business in India for the next 10 years in response to corruption allegations. In 2005, Denel of South Africa was blacklisted, and in 2014 AgustaWestland's contract for the purchase of VVIP helicopters was canceled following allegations of corruption. Finmeccanica and its group companies are now kept out of future defense projects.

Ankur Gupta, a defense analyst with Ernst and Young India, said: "A strict, no-nonsense policy to deal with irregularities should be put in place, but care should be taken that no step is taken to harm the effective use of already-inducted equipment."

Another MoD official warned the "policy cannot be in contravention to the laws of the country and has to be harmonized. The [Indian] law ministry will have a strong say in this matter and that is what is taking time." The official would not provide further detail.

Vivek Rae, MoD's former director general of acquisition, said: "A new blacklisting policy is urgently required to remedy the situation, in line with international best practices in democratic countries, where blacklisting is not the default option.

"There are various options for penalizing companies who violate the law or indulge in corrupt practices. Major democratic military powers like USA, with high standards of transparency, have elaborate suspension and debarment procedures, which balance considerations of probity and integrity with considerations of national security."

Stressing the need for a policy that will do away with blanket blacklisting, he added: "India needs to balance considerations of integrity with considerations of national security, based on international best

practices. The sooner this is done, the better. India cannot occupy the high moral ground when the ground beneath its feet is slipping away rapidly."

Vivek Raghuvanshi is the India correspondent for Defense News.

More In Pentagon