The world's biggest military market is right here

Armament makers, especially American ones, are eyeing India as a growth partner for the future

NEW DELHI: India is developing a military appetite to match its growing economic power. Over the next five years, military analysts expect it to spend $40bn on weapons procurement alone, more than its annual armaments budget today - upgrading systems as diverse as jet fighters, artillery, submarines and tanks. As a result, India will become one of the largest military markets in the world.

For American contractors,  the surge in demand comes just as relations between Washington and New Delhi reach a new level of warmth.

In terms of "potential for growth, India is our top market", said Richard Kirkland, Lockheed Martin's president for South Asia.

But whether US companies can turn that potential into profits will depend on how they finesse the particular challenges of the new market - especially, competition from their Russian counterparts.

The stakes of the contest were underscored this week when the Indian defence ministry called for bids to fill an order for 126 fighter jets, a contract that could be worth $10.2 bn.

Determined to build a domestic arms industry, India needs foreign suppliers to make a sizable portion of any military goods in this country. In the case of the jet fighter contract, the successful bidder must produce goods worth half the contract's value in India. American companies are busily pairing up with locals.

In February, Raytheon and the electronics division of the Indian giant Tata Power signed such an agreement. The same month, Boeing signed an accord with an Indian engineering firm, Larsen & Toubro, to develop new projects. 

The Americans' interest in India goes beyond weapons. This country has booming markets in commercial aviation, shipping and infrastructure projects, which means opportunities for logistics and security units of big US contractors.

Walter Doran, president of Raytheon Asia and a former commander of the Navy's Pacific fleet, predicts India may be "one of our largest, if not our largest, growth partner over the next decade or so".

The hefty increase in military spending reflects the country's changing view of itself. India, like "all aspiring nations, is seeking its place on the world's stage", admiral Sureesh Mehta, chief of staff of the Indian Navy, told thousands of white-suited officers at a naval conference in New Delhi in July.

In particular, India is positioning itself as a policeman of nearby waterways. Defence ministry spokesman Sitanshu Kar said, "If you look at the rim from west Asia to Asia-Pacific, that entire area accounts for over 70 per cent of the traffic of petroleum products for the whole world. We have a role to play to ensure these sea lanes are secure."

American carrier Trenton, which the Indian Navy bought and renamed Jalashva, can, for example, carry 450 soldiers and half-a-dozen helicopters, and be used to evacuate Indian nationals, deliver aid or intervene in conflict areas.

Yet India is virgin territory for American armament makers. Decades of cold war-era distrust, when India aligned itself much of the time with the Soviet Union, followed by sanctions president Clinton imposed after India tested nuclear weapons in 1998, made India a sort of no-go area for American companies.

Under the Bush administration, sanctions have been lifted and military ties have deepened. In July, the two governments announced a commercial nuclear energy agreement. Under the accord, the US will share nuclear technology with India, including fuel. The deal requires a radical, India-specific exception to American law and underscores the Bush administration's commitment, made two years ago, to help India become "a major world power".

But many arms industry analysts say winning big orders in India will still be a challenge for Americans. In many cases, companies will be competing directly against India's traditional supplier, Russia, which has manufacturing agreements in place and is still the largest supplier.

Though relations unraveled after the disintegration of the Soviet Union, they were repaired in the late '90s and the two countries are negotiating some $10 billion in contracts, including an Indian air defense system.

Nonetheless, Americans are winning some deals. Lockheed Martin is in final talks to sell six C-130J cargo planes for $1 billion.