NEW DELHI — An unprecedented competition announced by the Indian government to energize local private industry in aerospace manufacturing stands on a razor’s edge, with the country’s defense ministry contemplating opening participation to India’s monopolistic state-owned defense companies as well.

A $2.5 billion competition to replace the Indian air force’s (IAF) fleet of 56 vintage Hawker Siddley HS748 Avro medium transports was floated last year, specifically excluding state-owned Hindustan Aeronautics Ltd. (HAL) as an Indian contender. But pressure from politicians and lobbyists may squelch that idea. By March, Indian companies will need to submit proposals on how they plan to meet the requirement. If the defense ministry alters the competition, it will land a major blow to a private sector that has long decried preferential treatment and unfair rules for state-owned corporations.

The defense ministry wants a foreign airframer to identify an Indian production partner or consortium (which can include HAL, but not HAL alone) to which it will transfer technology to build 40 of the 56 aircraft at a local production line. The first 16 aircraft will be supplied in flyaway condition by the original equipment manufacturer. India’s minister for heavy industries protested in a letter last November, and the ministry announced it would study his concerns.

Meanwhile, the ministry postponed the last date for submission of proposals from Dec. 8, 2013, to March 8, 2014. Private industry is deeply worried that a reissue of the original request for proposals with participation restrictions expunged would kill the very spirit of the competition. India’s top private industry trade groups have raised sharp concerns.

“Revisiting the program, at this advanced stage, will not only stall this project but also discourage [the] private sector to proactively invest in the defense sector,” says the Confederation of Indian Industry (CII) in a letter to Indian Defense Minister A.K. Antony. The Federation of Indian Chambers of Commerce & Industry (FICCI) issued a similar missive to the minister.

The IAF is itself opposing changes to the RFP, given that it has long sought to develop new sources of aerospace equipment beyond HAL. A troubled relationship with HAL has strengthened the IAF’s resolve to provide a genuine opportunity for the Indian private sector to step up and move beyond the rut of supplying subsystems, spares and aggregates.

Retired air force officers are also weighing in, including one who was until recently a part of the acquisition process. In a column published in The Indian Express, Air Vice Marshal Manmohan Bahadur, now with the ministry-governed Center For Air Power Studies (CAPS) think tank, writes, “If we opt out now, our private industry, vibrant in other fields, will never take root in the defense sector.” Bahadur adds that the decision to exclude HAL from the competition was vetted at the defense ministry’s highest levels.

The IAF’s 1960s-vintage Avro transports, once workhorses in logistics duties, are in poor condition and need urgent replacement. Apart from these, the IAF operates a mix of An-32, Il-76, and C-130J Super Hercules transports. India recently signed a deal with the U.S. government for six more C-130Js.