India said Friday it had started the process of cancelling a 748-million U.S. dollar deal for 12 Italian helicopters amid allegations that the contract was won through kickbacks. Here, an Agusta Westland helicopter participates in a flying display in Hampshire, England. (Adrian Dennis/AFP/Getty Images)

Allegations of corruption in the purchase of 12 Italian helicopters are threatening India’s desperately needed multibillion-dollar modernization of its defense forces.

The chief executive of the Italian defense and aerospace company Finmeccanica, Giuseppe Orsi, was arrested in Milan this week on charges of bribing Indian officials to secure a $750 million deal in 2010 to sell the AW-101 medium-lift helicopters.

In response, India ordered a federal probe into the charges and put payments on hold. The Defense Ministry also deferred discussions this week on another contract to buy 197 light utility helicopters, fueling fears that the controversy may paralyze the government’s already painfully slow decision-making process.

Defense Minister A.K. Antony told reporters Wednesday that if the probe reveals proof of graft, the Italian company and its Britain-based subsidiary “are liable for criminal actions; they are liable to be prosecuted; the company is liable to be blacklisted.”

“We are not bothered about who the companies are, how strong they are, how influential they are,” Antony said. “Nobody will be spared.”

In a statement Friday, the Defense Ministry said it has notified the Finmeccanica subsidiary, AgustaWestland, that it is seeking to cancel the contract. The company was asked to reply to the notice in seven days.

Defense analysts said the dramatic revelations of bribery that are being splashed across Indian newspapers every day — and the probe they have prompted — may cast a shadow over India’s ambitious plans to replace its aging military arsenal. Those plans made the country the world’s largest arms importer last year. The bribes were allegedly offered to officials as high as the former air force chief.

The case has reminded many Indians of another defense corruption scandal in the 1980s, which helped bring down a government and pushed back many key defense purchase decisions. A similar delay, they now warn, may threaten India’s security at a time when its lumbering military needs to urgently transform itself into a leaner and more lethal force to face potential threats from neighbors such as China and Pakistan.

“The unfortunate fallout of the current helicopter controversy is that decisions will get stalled, people will play safe and not take any decisions at all, and that will affect our defense modernization and preparedness adversely,” said Mrinal Suman, a retired army major general who instructs foreign defense manufacturers on Indian weapons procurement policies. “The modernization of our armed forces is already lagging behind by 15 years. About half of the weapons and equipment in India’s armed forces are obsolete.”

In 2011, V.K. Singh, then chief of the Indian army, said the army’s major combat weapons were in an “alarming” state, making India unfit for war.

India in recent years has embarked on plans to upgrade its Soviet-era arsenal with new fighter aircraft, antitank missiles, maritime patrol aircraft, infantry combat vehicles, helicopters, assault rifles and submarines — a shopping list worth about $100 billion over more than a decade.

U.S. companies hope to corner a predominant share of this market in the coming years. Defense trade between the United States and India has generated nearly $8 billion since 2005, coinciding with a new era of closer ties between the two nations.

But each defense purchase takes an average of eight to 10 years, frustrating many foreign vendors.

“Overcautious officers delay the process by looping in and marking defense acquisition files to every senior [official], just to avoid taking individual responsibility for their decisions,” said an industry observer familiar with the process.

The reason for such nervousness, analysts said, is the bruising aftermath of a defense corruption scandal in 1989, in which Indian officials were accused of receiving bribes from the Swedish company Bofors in return for a contract to buy howitzers. The scandal cost the then-ruling Congress party dearly in elections that year.

“It took at least 15 years for the government to recover from the shock of the Bofors scandal and pick up the courage to take decisions on buying weapons again,” said Suman.

An editorial Thursday in the Indian Express newspaper warned against “the system’s tendency to lapse into inertia and indecision when faced with demands for greater accountability.”

As in the aftermath of the Bofors scandal, “procurement may again be slowed, suspended or banned, apprehending scandal,” the editorial said. “Asked to prove its innocence, the system could again choose to retreat to the comforts of inaction and prevarication.”