India will soon be supplying naval vessels to Vietnam, Prime Minister Narendra Modi said on Tuesday, the first significant military transfer to Hanoi at a time when it is embroiled in a territorial dispute with China.
The announcement came after Modi held talks with his visiting Vietnamese counterpart, Nguyen Tan Dung, during which the two sides agreed to modernize the Vietnamese military as well as raise Indian involvement in Vietnam's energy sector.
Both India and Vietnam have territorial disputes with China - India in the Himalayas and Vietnam in the South China Sea, which Vietnam calls the East Sea. New Delhi and Hanoi are beefing up defenses even as they ramp up commercial ties with China, the world's second-largest economy.
"Our defense cooperation with Vietnam is among our most important," Modi told reporters, adding it will be expanded.
Top of the agenda is the sale of four offshore patrol vessels that Vietnam wants to improve its defenses in the energy rich-South China Sea where it is locked in competing claims with China.
Talks on the naval craft have gathered pace since last month when India announced a US$100 million credit line for defense purchases, an Indian government official earlier told Reuters.
"We will quickly operationalize the $100 million Line of Credit that will enable Vietnam to acquire new naval vessels from India," Modi said.
Vietnam wants the craft for surveillance off its coast and around its military bases in the Spratly island chain in the South China Sea where it is building a credible naval deterrent to China with Kilo-class submarines from Russia.
Claims by an increasingly assertive China over most of the South China have set it directly against Vietnam and the Philippines. Brunei, Taiwan and Malaysia also claim parts of the waters.
Beijing's placement of an oil rig in disputed waters earlier this year infuriated Vietnam but the coastguard vessels it dispatched to the platform were each time chased off by larger Chinese boats.
India and Vietnam called for peaceful resolution of the disputes in the region.
"They agreed that freedom of navigation and overflight in the East Sea/South China Sea should not be impeded and called the parties concerned to exercise restraint, avoid threats or use of force," a joint statement said.
The two sides also signed an agreement under which India's state-run oil exploration arm, ONGC Videsh Ltd, will enhance cooperation with PetroVietnam.
"The agreement underlines Vietnamese invitation to OVL to expand its presence in Vietnam and further consolidate cooperation in exploration and other areas between the two countries in energy sector," the joint statement said.
China has previously criticized India's cooperation with Vietnam in the oil and gas sector, saying its exploration activities off the Vietnam coast are illegal.
On Tuesday, responding to a question on India and Vietnam exploring oil together in the South China Sea, Beijing said it would have no problem so long as it was carried out in waters that were not disputed.
"China has indisputable sovereignty over the Spratly Islands and its adjacent waters. We have no objection to countries who want to carry out legitimate and lawful oil and gas cooperation in waters that we have no dispute over," Foreign Ministry spokesman Hong Lei said.
"But if such cooperation harms China's sovereignty and interests, we will resolutely oppose it."