"You cut down your options by indiscriminate blacklisting. I am not saying blacklisting should not be there. If one has committed a serious crime, it has to be punished severely. But just understand a scenario where because of some small issue we blacklist a series of companies," he said.
Parrikar was addressing a conclave organised by Forum for Integrated National Security.
The Defence Minister defended government's decision to partially lift the ban on Tatra trucks, saying it had affected supply of some important equipment.
I think the need of the defence forces is the first priority. Of course, we have not fully withdrawn the ban. We have only said that it can be used only where it is absolutely essential," the minister said.
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Last December, Parrikar had said the government was open to reviewing all cases of blacklisted defence firms on merit and partially lifted a ban on Tatra trucks.
Parrikar said India has the capability to export defence and aerospace products but stressed on the need to remove bottlenecks in defence procurement.
"We have created a web of procedural bottlenecks so much so that files initiated in 2006 or 2007 are coming to me now," he said, in a veiled attack on the previous UPA government.
Parrikar assured the industry that his ministry would come out with new defence procurement procedures to address their concerns.