ROME -- India on Wednesday suspend a 752- million-U.S. dollar contract with Italy's Finmeccanica after the head of the defense giant was arrested for alleged bribery.
As the Indian government is working hard to shed its image of corruption in military procurement processes, speculation runs in both countries that the Indian government is taking a hard line against Finmeccanica in order to show its determination.
Indian Defense Minister A.K. Antony said Wednesday that the government would make no more payments nor take delivery of the remaining nine helicopters until the Italian investigation into Finmeccanica CEO Giuseppe Orsi was complete.
Antony warned that India would also blacklist Finmeccanica if the bribery charges were proven, and he ordered India's Central Bureau of Investigation to conduct its own investigation into the case.
"If a company violates the rules, they are liable for criminal action," Antony said, according to Indian newspapers. "We will blacklist them. We cannot allow corruption in defense deals."
Orsi is charged with paying bribes to secure the helicopter deal as well as corruption and embezzlement. He has denied any wrongdoing.
Meanwhile, former Indian Air Force chief S.P. Tyagi, who has allegedly been bribed by Finmeccanica to swing the controversial chopper deal, has also denied any wrongdoing.
The case risks impairing Finmeccanica, the largest high-tech industrial conglomerate in Italy, in its attempt to do business with India, the world's largest importer of defense hardware.
For Italy the case is embarrassing and will have an impact on one of a small handful of economic sectors where an Italian company is highly competitive internationally.
The case could also strain the already delicate relations between Italy and India. A year ago, a small detachment of Italian marines, on board Italian oil tanker MV Enrica Lexie, were charged with killing two Indian fishermen off the coast of southern India.
Indian authorities held the sailors in custody for more than three months, and released them only after the Italian government promised to try them in India.