- India was to buy 1,600 Spike anti-tank guided missiles from Israel
- Spike is a man-portable "fire and forget' missile
- Defence Ministry said centre will back state-run DRDO
The Defence Ministry had taken the decision much earlier but the company was formally informed only last week, around the same time that New Delhi was finalising purchase of $ 70 million deal for 131 Barak surface-to-air missiles from the Israeli firm. The deal was cleared by a top Defence Ministry panel on Tuesday.
In a statement, Rafael said it regretted India's decision but remained committed to cooperating with the Defence Ministry and "to its strategy of continuing to work in India, an important market, as it has for more than two decades, to provide India with the most advanced and innovative systems."
Spike is a man-portable "fire and forget' missile that can hit moving targets such as a tank, allowing the soldier who fires the missile to quickly move for cover. India had opted for the Israel's Spike over the Javelin missiles offered by Washington in 2014.
Negotiations with Israel's Rafael for the Spike missile had been completed and the Israeli firm had already constructed a missile-manufacturing facility near Hyderabad in joint venture with the Kalyani group.
But the Defence Ministry later decided to back the state-owned Defence Research and Development Organisation (DRDO) which has promised to deliver a world-class missile within four years.
Sources have indicated that Rafael's Hyderabad facility would not be scrapped as it was designed to accommodate "a number of other projects Rafael is engaged in with its Indian partners".
India's exit from this deal, however, would not have any repercussions on bilateral relations that Israeli Prime Minister Benjamin Netanyahu had last year described, as being in a state of "constant upswing". The Rafael chief executive officer will also accompany Mr Netanyahu when he arrives in India later this month, leading a business delegation that will spend five days in India.
Israel has become a major defence supplier to India, selling an average of $1 billion of military equipment each year.
During PM Modi's visit to Israel in July last year, the two leaders had elevated ties between the two countries to a "strategic partnership". In November, the Indian Air Force and Special Forces also took part in the Israeli Blue Flag air exercise, in what was seen as a sign of strengthening ties.