Global defense manufacturers, looking to take advantage of growth in Indian spending, are increasing production in Asia's third largest economy, executives said ahead of India's biennial air show on Tuesday.

The show in the southern city of Bangalore takes off against a backdrop of stepped-up arms spending and rapid growth in commercial aviation in Asia's third-largest economy.

India is looking to modernize its military in keeping with its growing global stature and in the face of increasing assertiveness by China, in a South Asia region that New Delhi considers its sphere of influence.

Swedish defense and aerospace group Saab AB on Tuesday said it plans to open a research and development center in India soon, where it will add 300 engineers over five years.

The Pratt & Whitney unit of U.S.-based United Technologies , meanwhile, is in talks with Indian companies to form five joint ventures to make engine parts in India, the unit's India head said on Tuesday.

Saab's JAS-39 Gripen is competing with Boeing's F/A-18 Super Hornet, Dassault's Rafale, Lockheed Martin Corp's F-16 and Russia's MiG-35 to win a contract from India for 126 fighter jets, valued at around $11 billion.

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

Boeing's India head, Dinesh Keskar, said he expected India to shortlist bidders this year and make a final decision in 2012.

That tender, one of the largest export orders in the history of defense, is part of India's plan to spend $50 billion on its armed forces over the next five years. India has budgeted $32.5 billion for defense spending this fiscal year, up roughly four percent from a year earlier.

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

BILATERAL TRADE

In recent months, India has hosted U.S. President Barack Obama, Russian President Dmitry Medvedev and French President Nicolas Sarkozy, with defense and aviation key agenda items.

U.S. Commerce Secretary Gary Locke, leading a trade mission of 24 U.S. companies to India, on Monday said India's restrictive trade policy was impeding foreign investment, adding the country needed to work harder to free up its economy.

United Technologies' Sikorsky Aircraft, which makes helicopters, expects Indian demand for helicopters to reach $21.4 billion in the next 20 years but also complained about high duties.

The duties on aircraft are horrendous here and really inhibits import, makes them almost unaffordable, said Stephen Estill, vice president of strategic partnerships at Sikorsky.

General aviation opportunities will not expand until these duties are relaxed, he told reporters.

In 2009, India introduced a new rule that made it mandatory for foreign defense firms to buy 30 percent of their equipment from local firms to boost the domestic defense sector. India is now looking to raise that figure to 70 percent in a decade.

COMMERCIAL AVIATION

Commercial carriers are also expanding their fleets as demand booms, and Boeing's Keskar said he expects the Indian commercial airline market to reach $130 billion over the next 20 years.

Budget carrier IndiGo in January placed a provisional $15.6 billion order to buy 180 planes from Airbus in the largest jet order in commercial aviation history. Rival SpiceJet in November agreed to buy 30 Nextgen turboprop aircraft from Canada's Bombardier Inc for as much as $915 million.

However, infrastructure and financing challenges have hindered fleet expansion in India, even as passenger traffic grew 19 percent through November last year.

In China by comparison, Boeing expects the commercial aviation sector to hit $480 billion over the next 20 years.

Saab Chief Executive Hakan Buskhe said the company is in talks with Indian commercial carriers to sell its Saab 340 and Saab 2000 aircraft, both of which it is displaying at the show.

Buskhe also said it is in talks with other parties, including the Indian navy, to sell air defense missile systems and other equipment that can be used in aircraft, battleships and ground stations.

Buskhe also said he expected Brazil to announce a bidder for a key jet fighter contract worth more than $4 billion by the end of this year. The deal has sparked fierce competition among global aircraft makers, including Boeing and Dassault.

(Additional reporting by Tim Hepher in Paris; Bharghavi Nagaraju, Arup Roychoudhury, A.Ananthalakshmi in Bangalore; Writing by Jui Chakravorty; Editing by Tony Munroe)

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