Half of India's defence equipment outdated - report

NEW DELHI Jan 13 (Reuters) - At least half of India's defence equipment is obsolete and needs urgent upgrade, a report said on Wednesday, underlining gaps in its defence preparedness in a region roiled by Islamist militancy and military rivalries.

Only 15 percent of India's equipment is "state of the art", according to the first comprehensive report on the country's defence sector prepared by global consultancy firm KPMG and the Confederation of Indian Industry.

New Delhi changed its defence procurement policy last year to further open its defence sector to the world and local companies after the Mumbai attacks in November 2008, in which 166 people were killed.

The attack revealed glaring holes in India's security system.

The new report, released by Defence Minister A.K. Antony, says India will have to focus on improving homeland security after the Mumbai attacks and the government needs to support private firms in manufacturing equipment locally.

India says it is keen to upgrade its largely Soviet-era arsenal to counter potential threats from Pakistan and China with a series of acquisitions and by phasing out old weapons.

The country has lost nearly 200 Russian-made MiG series aircraft in crashes since 1990, blamed by the air force on manufacturing defects.

India wants to increase its air force squadrons from 34 (612 fighters) to 42 (756 fighters) by 2020 with modern aircraft. The Indian army also needs new weapons urgently, the report said.

Bofors Howitzers were the last major acquisition made by the Indian Army way back in 1986, it said.

"The Kargil conflict of 1999 (with Pakistan-based militants in Kashmir) highlighted the shortcomings of equipment held by the Indian armed forces, highlighting the need to modernise the equipment portfolio," the report says.

Since early 2000, India began to buy weapons from other countries like Israel and the United States to replace Russian-origin defence equipment and is now speeding up deals.

India is currently the 10th largest defence spender in the world with an estimated 2 percent share of global expenditure.

The United States, Britain, China, France and Japan are the leaders in global defence spending, each accounting for 3-5 percent of total global expenditure.

Last August, India started field trials to buy 126 multi-role fighter jets, defence officials said, moving forward on a $10.4 billion deal, one of the the biggest in play.

India is also seeking heavy lift helicopters, submarines, ships and artillery for its army, valued at millions of dollars, the KPMG report says.

All deals are part of a $100 billion budgetary provision over the next 10 years, Indian officials say.

(Editing by Alistair Scrutton and Paul Tait)