India plans to award an $11 billion fighter jet contract by the end of March 2012, its defense minister said, as manufacturers at India's airshow vied to boost their share of a fast-growing military hardware market.

The six global firms competing for the contract to provide India with 126 fighter jets were among those showing off their wares at the biennial event, which has become increasingly important as Asia's third-largest economy steps up spending to modernize its military.

India's decision on a final bidder will likely be based not only on technology and price, but also on its desire to diversify from primarily Russian deals and expand alliances to, for example, the United States and Europe.

U.S. defense firms are looking to take advantage of the Obama administration's recent removal of nine Indian aerospace and defense firms from a list of restricted entities that cannot be sold certain technologies with military uses.

Boeing has begun talks with the Indian Space Research Organization, one of the firms removed from the prohibited list, to collaborate on space technology, the U.S.-based aerospace giant told Reuters at the airshow.

Rival Lockheed Martin said it would also look at the opportunity created by the removal of companies from the list.

Still, barriers to trade remain. A senior executive at BAE Systems at the show said the British defense contractor would like to see India raise the level of foreign direct investment in defense, currently capped at 26 percent.

In an ideal world, we would like that to go altogether, but I would be more than happy if India raised it, Alan Garwood, BAE's group business development director, told Reuters.

If India wants to transform from 70 percent imported to 70 percent indigenous ... then there is a really high level of technology transfer, and it involves investment from defense companies. Doing that when you can have only 26 percent of the action is quite difficult, he said.

BAE will also partner Mahindra & Mahindra in developing and producing a combat vehicle for the Indian Army if Mahindra wins the contract, Brigadier K. Hai, Chief Executive of Mahindra Defense, told Reuters.

Many companies are vying for the contract, which requires the bidder to develop and produce 2,600 armored vehicles designed to transport troops in hostile terrain.

That tender is part of India's efforts to upgrade its armed forces, which still rely heavily on Soviet-era equipment, and is in keeping with its growing economic stature, an increasing assertiveness by China and a perceived threat from Pakistan.

India has budgeted $32.5 billion for defense spending in the year to end-March, up about 4 percent on the previous year.

Meanwhile, a burgeoning middle class in an economy growing at nearly 9 percent has spurred rapid growth in commercial aviation.

EASIER PROCUREMENT

Indian defense minister A.K. Antony said India was making the procurement process easier. Several global firms announced plans on Tuesday to set up operations in India, which is looking to spend $50 billion on its military over the next five years.

We have been fine-tuning our defense procurement procedure through periodic reviews to make it as transparent and efficient as possible, Antony said on Wednesday.

We have expanded the scope of existing offset policy guidelines to include civil aerospace, internal security and training ... We hope this will provide even better opportunities to foreign manufacturers, he said.

Under its offset policy, India requires foreign defense companies to invest part of their contract award in the country.

That mandate is not deterring foreign firms from competing for business in India.

Lockheed, which sold India six C-130 J transport aircraft in a $1 billion deal, told Reuters the country had expressed interest in buying another six. The planes are considered the world's most advanced transport aircraft.

Saab's JAS-39 Gripen is competing with Boeing's F/A-18 Super Hornet, Dassault's Rafale, Lockheed's F-16 and Russia's MiG-35 to win the fighter contract, which would be one of the largest defense export orders in history.

Cassidian, the defense arm of EADS and a partner in the Eurofighter Typhoon, is also competing for the fighter award. Eurofighter is a four-nation consortium of EADS, representing Germany and Spain, Britain's BAE Systems and Italy's Finmeccanica .

Antony said the fighter jet contract process was going smoothly.

(Writing by Jui Chakravorty; editing by Tony Munroe, Malini Menon and Will Waterman)

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