India, which is expected to increase the amount it spends on defense each year, will introduce new regulations on military joint ventures.

The guidelines under consideration will be developed to incorporate foreign direct investment policies utilized for JV defense collaborations in more developed countries working with interested foreign military defense production firms, government sources said.

A key element of the government's proposed policy is to institute security and auditing procedures for JVs and their supply chains to standardize and protect production.

India is striving to increase production by its indigenous defense sector but it still imports more than 60 percent of its military needs.

India's Ministry of Defense said the proposed production guidelines will apply to JVs based on the Ministry of Defense's "threat perception" of JV systems under development, taking into account the technological sensitivity of the JV products.

Justifying the policies, Indian Defense Ministry officials noted that nations like Canada, China, Germany and South Korea tightened defense foreign direct investment policies after the Sept. 11, 2001, terrorist attacks in the United States and introduced politics to oversee foreign direct investments.

Under current Indian legislation, FDI is permitted up to 26 percent in defense-related activities, with JVs required to obtain industrial licenses under terms of the Industries Development and Regulation Act.

That measure stipulates that the JV companies must be majority-owned and controlled by Indian residents and their companies.

Some elements of the proposed regulations are already evident, as defense JVs will have to seek prior separate security clearances from the Home Ministry regarding subsidiaries, directors and any foreign nationals employed on such projects, the Financial Express reported.

India is having little problem attracting foreign defense interest. As of April 20, the Indian government approved 22 FDI proposals worth a total of $112.5 million, after the proposals were cleared following the recommendations of the Foreign Investment Promotion Board at its March 30 meeting, the Finance Ministry said.

Foreign companies expressing an interest in entering India's defense sector include Britain's BAE, the European consortium EADS and U.S. aerospace defense firms Sikorsky and Lockheed Martin, all of which see India as a potential lucrative new market.

The future of such bilateral defense arrangements looks bright for European FDI, as earlier this month the European Union and its External Action Service senior officials told a group of visiting Indian journalists that the European Union has a "rich agenda" with India to which security and counter-piracy have also been added.