India extended a US$100 million export credit to Vietnam for defence deals and tightened energy ties on Monday during a visit to Vietnam by Indian President Pranab Mukherjee.
The two countries said in a joint statement that the credit line would "open new opportunities" for defence cooperation and that details of what Vietnam would buy were being finalised
"The leaders agreed that defence and security cooperation was an important pillar of the strategic partnership between the two countries," the statement said.
They also agreed to "consolidate" energy cooperation following a 2013 agreement under which PetroVietnam offered India's ONGC oil and gas blocks for exploration and production.
India and Vietnam have deepened military cooperation over the past decade and under Prime Minister Narendra Modi, India is pushing ahead with a new strategy to establish itself as an arms exporter using export credits to leverage foreign sales.
The money may help slow-moving talks to sell Brahmos cruise missiles to Hanoi.
Vietnam is strengthening its navy with Kilo class submarines from Russia and it would like to add India's missile technology to its defences.
India and Vietnam have both traditionally depended heavily on their mutual Cold War partner Russia for military knowhow. The Brahmos itself was developed with Russian help.
Carl Thayer, an expert on Vietnam’s military at the Australian Defence Force Academy in Canberra, said he believed Vietnam was seeking India’s ship attack variants of the missile.
Indian tests showed the supersonic cruise missile could be successfully fired from ships, which matched Hanoi's goal of creating a meaningful deterrent against China.
At the scene
Indian President Pranab Mukherjee arrived in Hanoi on Monday for a three-day visit to Vietnam.
He has met Nguyen Phu Trong, Secretary General of the Communist Party of Vietnam, Prime Minister Nguyen Tan Dung and National Assembly Chairman Nguyen Sinh Hung.
During their discussions, President Mukherjee stressed that Vietnam was an important pillar in India ’s Look East policy and the development of India-ASEAN relations, and expressed his wish for their strategic partnership to be strengthened further.
The state leaders highlighted the rapid growth in bilateral trade which is expected to hit $15 billion by 2020.
They also agreed on the importance of security, safety and freedom of navigation in the East Sea, also known as the South China Sea. They called upon all parties to resolve disputes peacefully in line with international law, including the 1982 UN Convention on the Law of the Sea, implement the 2002 Declaration on the Conduct of Parties in the East Sea and work towards the adoption of a Code of Conduct in these waters.
"This is leading-edge technology that would further complicate the ability of the Chinese navy to operate off the Vietnamese coast with impunity, particularly in the south of the South China Sea," Thayer said.
"The Vietnamese do not want to be in a situation where they wake up one morning and discover the Chinese navy has surrounded one of its bases in the Spratlys," he said, referring to a disputed island chain.
Business is growing fast between India and China, but the rising powers' ties are also defined by competition for energy and regional clout, as well as a border dispute that led to war 50 years ago.
Long insecure about China's strength, India elected Modi in May partly because of his promises to build an economically strong nation that could hold its own on the world stage.
The timing of Mukherjee's visit to Vietnam may not have been planned to coincide with China's President Xi Jinping's visit to India this week, but it underlined Delhi's new twin track diplomacy, foreign policy analyst C Raja Mohan wrote in the Indian Express newspaper on Monday.
"Much like China, which does not limit its strategic relationship with Pakistan because of Indian concerns, the Modi government apparently believes it can build a partnership with Vietnam on its own merits without worrying too much about what Beijing might think," Mohan said in his column.
Also on Mukherjee's trip, India's Jet Airways and Vietnam Airlines agreed to start flying between Delhi and Ho Chi Minh City from November 5, via Bangkok.
Xi will be in India from Sept. 17-19.