India's top vehicle utility vehicle maker, Mahindra and Mahindra, has signed an agreement with BAE Systems, the world's No. 2 defense contractor, to create a land-systems-focused joint venture defense company.

The investment project, estimated at $21.25 million, will be based in India with manufacturing at a purpose-built facility south of Faridabad, on the outskirts of New Delhi. It will have a start-up staff of 100.

Under the deal, Mahindra will hold 74 percent in the venture and Britain's BAE Systems will retain the remaining 26 percent stake -- the maximum foreign direct investment permitted for defense projects.

The deal, according to a Mahindra statement, will kick off with projects such as the Axe high mobility vehicle, as well as armored and bulletproof Scorpios and Boleros, the Rakshak rapid intervention vehicle and the Marksman light armored vehicle.

"In anticipation of the new company, the two shareholders have been progressing a major new project to develop a mine protected vehicle specifically designed to meet the needs of the Indian armed and paramilitary forces," the company said in a statement.

A raft of foreign companies have been competing hard for a stake of the $30 billion that India is expected to spend on military purchases over the next five years.

Likewise, Indian defense companies are set to gain access to an estimated $100 billion market over the next decade -- in line with a new policy sanctioning foreign companies to bid for major defense projects.

The current deal with BAE will span a three-year period.

Local reports suggest Mahindra's defense systems will bid for domestic defense projects worth $3.5 billion over the next seven years.

In November alone, Mahindra sold 22,587 vehicles, nearly double the 11,515 sold during the same month in 2008.

BAE and Mahindra have been working together to develop a mine protected vehicle to be used by India's military. A prototype of the vehicle has already been developed.

"The skills and knowledge of the two companies are an excellent fit," Guy Griffiths, international managing director of BAE, was quoted saying to local media. "The values and vision that we share will allow this venture to prosper and innovate."

Local media also reported that the joint venture will be involved in various artillery programs including the M777 lightweight howitzer and the FH77B 155mm howitzer.

The name and leadership of the joint venture remain to be announced.