"The issue (of blacklisting) has been discussed at length at the Defence Ministry. There are a large number of firms which have been blacklisted. Now that upholds consideration of probity but that narrows our buying options which can affect our security preparedness,' said Jaitley.
"The issue was referred to the Attorney General and thereafter the Law Ministry has considered it. We have eased to the extent that where supplies have already been made, you need servicing of those equipment. Now you cannot say we have blacklisted you and we won't take your spare parts. That will make the equipment redundant," he told a press conference.
He was asked about government's recent decisions on blacklisting related to Italian defence firm Finmeccannica where it was allowed to take part in already concluded deals but banned form taking part in future bids.
The Minister said there are three sets of circumstances for which the Defence Ministry has come up with new rules on blacklisting.
He cited circumstances where "bids have come in (including that of blacklisted players) and there are other eligible players. The bid of blacklisted players is not opened and other bids are opened. The decision has been taken keeping a balance between security considerations and considerations of probity."
Asked if the rules would be applied to all blacklisted firms or only Finmeccannica, Jaitley said this was a common principle and would be applicable in all cases.
During the UPA regime, deals with firms facing corruption allegations were put on hold and no business was transacted with such entities even if it was affecting the operations of equipment supplied by these vendors.
Italian firm Finmeccannica and its subsidiaries including AgustaWestland are facing charges of corruption in the VVIP chopper scam which has already been scrapped.
Earlier this week, the government decided that the firm and its group companies would be allowed to supply spares for servicing equipment already supplied by them but they would not be allowed to bid in future contracts and their bids would not be opened in cases where there are other competitors.
A number of defence firms including German Rheinmetall, Singaporean ST Kinetics, Israeli IMI and Russian Corporation Defence were blacklisted for alleged corruption in Ordnance Factory Board scam.
On government's recent decision to scrap the Rs 6,000 crore tender for procuring light choppers for the Army and Air Force, the Minister said this would allow the domestic defence industry to take part in these programmes and create a new manufacturing industry in the military sector.