India announced that it would award a $12 billion contact for 126 multirole combat aircraft to either Eurofighter or France’s Dassault. The decision is a disappointment for American, Russian and Swedish manufacturers who had also been bidding for the deal.

According to the Indian Defense Ministry, the four others contenders, including Boeing and Lockheed Martin, were rejected on technical grounds. The United States ambassador to India said to be disappointed by the news and was confident “that the Boeing F/A 18IN and Lockheed Martin F-16IN would provide the Indian Air Force an unbeatable platform with proven technologies at a competitive price.”

India is a booming market for defense contractors. It expects to spend nearly $120 billion on modernizing its systems between 2012 and 2017 alone. This year, India’s defense budget amounts to just over $36 billion or 1.8 percent of GDP. Close to 70 percent of its weapons are produced abroad, mainly by American, Israeli and Russian firms.

There has traditionally been a strong Indo-Russian defense partnership and it continues to blossom as China rises. In part, that is because India intends to match the Chinese military buildup.

Beijing maintains bases and influence in neighboring Burma and Pakistan while the two Asian giants have clashed several times in their Himalayan border region. China’s own defense industry is expanding moreover at the expense of Russian companies that used to export weapons systems to the Middle Kingdom. It is why Balaji Chandramoha concluded in October of last year that China is driving India and Russia together.

The disappointment on the Russian side can’t be to great however as India will still buy $25 billion worth of Russian-made fifth-generation stealth fighter jets. But Boeing and Lockheed must surely feel let down. Sumit Ganguly points out at The Diplomat that the decision comes in spite of President Barack Obama’s lobbying for the two aerospace companies when he visited India last year. He specifically urged closer business ties at the time, calling it a “win win” scenario for both nations.

It may be too early to tell what, if any, impact the news will have in both Delhi and Washington yet there is little question, according to Ganguly, “that at least in the short run, this decision will have some adverse consequences for the growing Indo-American relationship.”