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

By Bappa Majumdar

NEW DELHI (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, officials 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.