India to give US$500 million ‘defence credit’ to Vietnam for arms deals

India said on Saturday it is giving Vietnam half a billion dollars in credit to boost defence ties, the latest security deal between the two nations seeking to counter Beijing’s muscle-flexing in the South China Sea.

Indian Prime Minister Narendra Modi made the announcement during a visit to Hanoi, which has gone on a spending spree in recent years to expand and modernise its military arsenal amid territorial disputes with Beijing in the strategically vital waterway.

“I am also happy to announce a new defence credit for Vietnam of US$500 million for facilitating deeper defence cooperation,” Modi told reporters after officials signed a raft of agreements, including in technology, cybersecurity and health.

He did not specify details of the arrangement, but traditionally such lines of credit would oblige Vietnam to sign contracts with Indian companies.

About 50 per cent of India’s trade passes through the South China Sea, where Beijing has built up islands and outcrops capable of supporting military activities, much to the chagrin of Vietnam and other claimants.

Vietnam’s Prime Minister praised its close friendship with India Saturday during the visit – the first by an Indian premier in 15 years and part of New Delhi’s “Act East Policy” to strengthen economic and security ties with east Asian neighbours.