The 2.4 billion euro deal to build an initial six diesel submarines was signed in October 2005 with Armaris, a subsidiary of France's Thales group and Direction des Constructions Navales (DCN).

The agreement also includes the sale of 36 Exocet-type anti-submarine and anti-ship missiles.

"As far as the production is concerned, nothing has changed. We are technically ready. Production will be starting on Thursday," Krishnan told AFP.

"This is only phase one. We plan to build 18 more indigenous submarines," he said.

The Scorpene, jointly developed by DCN and Spain's Navantia, is a 67-metre-long (220 feet) craft designed for attack and interception. Malaysia and Chile have also placed orders.

India's contract covers a 12-year period, and the first craft is scheduled to enter into service in 2012, with an additional submarine following each year.

India's navy currently has 16 submarines, but these are mainly ageing Russian and German models. With the Scorpene, India is hoping to bring its fleet up to date to match challenges from rivals Pakistan and China.

The contract also includes the transfer of key technology, with just the first two submarines being built under French and Spanish supervision.

The arrangement has been presented as a win-win deal giving new technology to India and a major foothold in the country's huge defence market to the foreign firms.

"It's an innovative technology transfer, with the indigenisation of sub-systems, equipment and components," said Amaris' project director Xavier Marchal.

"In the future there will be good deals to be made in India. This serves as a foundation for DCN's industrial relations at a moment when India's defence economy is transforming," he said.

India is the largest arms purchaser among emerging nations and said last month that it will not prune defence spending because of the growing threat from terrorism and ongoing regional tensions.

India annually spends 14 billion dollars, or 2.34 percent of its gross domestic product, on its military. Since 2004 it has either spent or committed billions of dollars in modernisation projects planned until 2010.

But the Scorpene deal has been marred by corruption allegations.

The main opposition party, the Hindu nationalist Bharatiya Janata Party (BJP), alleged that around four percent of the contract amount -- or around 100 million dollars -- was paid to Indian intermediaries, one of whom is said to be close to the ruling Congress party.

The charges came after weekly magazine Outlook published a series of articles alleging that French defence giant Thales paid the commission to Indian middlemen to clinch the deal.

Thales as well as the French and Indian governments have denied the allegations.

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