Why India Talked Up a U.S. Carrier Deal

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India Did Not Use Leverage

India needs an aircraft carrier soon. The Indian navy will probably decommission the 50-year-old carrier INS Viraat in 2010, while the first indigenous aircraft carrier, being built at the Cochin Shipyard in southern India, won't be ready for another five years. "Russia knows this and wants to pressure India into the purchases," says Dipankar Banerjee, director of the Institute of Peace & Conflict Studies in New Delhi.

Not everyone is happy about the deal. Defense analysts in New Delhi say India did not use its considerable leverage with the Russians, and simply succumbed to the new demands on the Gorshkov deal. Retired Admiral Arun Prakash is scathing. He was head of the Indian Navy in 2004 when the original deal was "laboriously and painstakingly negotiated for 11 months, and the contract sealed and signed."

He is disappointed by Russia "reneging on the deal" and says Russia "gifted" the Gorshkov to India in exchange for a $1.5 billion contract to buy planes and helicopters and "revive their terminally ill shipbuilding and aircraft manufacturing industries." He says the carrier Cochin Shipyard is building will be a good alternative for the Gorshkov. "What better bargaining chip do you need?" he asks.

Perhaps. But many are skeptical about India's capability as a defense equipment manufacturer. India's state run Hindustan Aeronautics has been working on a light-combat fighter for years—it's now 10 years behind schedule. "India's indigenous development is more in keeping with the Nehruvian philosophy of modernity, but combat equipment is made by countries with the highest level of military expertise," says Marook Raza, a New Delhi defense analyst.

With Keith Epstein in Washington and Jason Bush in Moscow

Lakshman covers India business for BusinessWeek .