* Defence procurement bogged down in red tape
* Vulnerability to regional rivals grows
* Opposition challenger plays national security card (Adds background on cancellation of AgustaWestland deal in 10th paragraph)
By Sruthi Gottipati
NEW DELHI, March 25 (Reuters) - For a country aspiring to be a modern military power in a volatile region, a sequence of fatal accidents aboard its submarines has demonstrated why India's next government needs to straighten out its defence priorities.
The resignation of the naval chief of staff, weeks before a general election, reveals just how far the outgoing government's failure to equip its forces has eroded the trust of top commanders.
Admiral D.K. Joshi, 59, quit on Feb. 26, the same day that two officers were killed by smoke that engulfed a part of the INS Sindhuratna. The Soviet-built Kilo class submarine was commissioned in 1988 and, officers say, should have been scrapped long ago.
Joshi took "moral responsibility" for a series of recent operational incidents, the government said when it accepted his resignation, but he has not commented since.
"It's a culmination of frustration in the navy that Admiral Joshi represented," said Bharat Karnad, a senior fellow in national security studies at the Centre for Policy Research, explaining the admiral's resignation.
"The chief's patience just snapped."
Seven months earlier, a dockside blast in Mumbai killed 18 submariners on board the INS Sindhurakshak.
One naval officer, who requested anonymity, described the danger of using worn-out equipment so prone to failure as being like "treading on a minefield".
Defence procurement has been haunted by the 1980s bribery scandal linked to an artillery order from Sweden's Bofors, that helped bring down the government of then prime minister Rajiv Gandhi, whose Congress party has held power since 2004.
Allegations of bribery also lay behind India's cancellation of a 560 million euro ($770 million) helicopter deal with AgustaWestland in January. The government said it did not believe the Anglo-Italian firm's denial it paid bribes to win the order.
One former senior submariner describes a gridlock in which bureaucrats make "observations" and note their "reservations", but make no decisions to buy or replace equipment for fear of being implicated in corruption scandals.
"No one wants to touch the damn thing," he said, noting that delays also cause procurement costs to escalate.
In one example, a contract was agreed for six Scorpene class diesel-electric submarines to be built in Mumbai at a cost of 188 billion Indian rupees ($3 billion), for delivery in 2012.
The subs, based on a design by France's DCNS, will now cost 25 percent more and will not start to enter service until 2015, due to what the defence ministry has called "initial teething problems in absorption of new technology".
Although delays aren't unusual in defence contracts around the world, India's defence ministry has been particularly tardy.
Between 2005 and 2010, for instance, 113 of 152 naval refits at state-owned dockyards under the defence ministry were completed within an accumulated delay of 23.6 years, said Rahul Bedi, an IHS analyst.
It has also been slow to sign new contracts. The navy's plea to Defence Minister A.K. Antony over the past four years to dispatch a global tender for six more submarines, in addition to those designed by DCNS, has largely been ignored, said Bedi.
India can ill-afford indecision and delay, given the potential threat from nuclear-armed rivals - a rising China and an unstable Pakistan - and a region facing uncertainty as U.S. forces pull out of Afghanistan.
While the ruling Congress party faces defeat in the five-week general election that starts on April 7, opposition challenger Narendra Modi is playing the national security card in his bid to lead India's 1.2 billion people.
"(The) government has been absolutely lax in securing Indian borders," the Hindu nationalist leader has told his 3.5 million followers on Twitter.
The navy's accidents has provided Modi's Bharatiya Janata Party (BJP) ammunition to attack a defence minister who was branded the "worst ever" by one retired rear admiral.
Modi has floated plans to open up India's defence industry to reduce the country's reliance on arms imports - a strategy that has promise but faces resistance from vested state interests, according to veteran commentator John Elliott.
"Modi does look as though he will push the involvement of the private sector, and assuming he puts in a competent minister he can start to shake things up," said Elliott, whose new book 'Implosion' takes a critical view of a decade of Congress rule.
Still the world's largest arms importer, India has made slow progress in building its own arms industry. Once reliant on Soviet weaponry, it is now the top export market for U.S. arms.
There have been some native triumphs, including getting the reactor on India's first indigenous nuclear submarine operational last year.
But, India's defence budget, at $46 billion last year, was a third of China's, estimates consultancy IHS.
In February, Antony delayed an order for French fighter jets, saying his annual capital budget was exhausted.
Yet Finance Minister P. Chidambaram has brushed aside funding concerns: "I sincerely hope that the defence forces will learn a lesson and make sure that the money allocated to them is spent more wisely and more efficiently on essential matters." ($1 = 61.1400 Indian rupees) (Writing by Sruthi Gottipati; Editing by Douglas Busvine and Simon Cameron-Moore)