NEW DELHI, Sept 22, 2015 (AFP) - India cleared on Tuesday a US$2.5 billion (S$3.54 billion) deal to buy 37 military helicopters from aviation giant Boeing, on the eve of Prime Minister Narendra Modi's visit to the United States.

Modi's government is in the middle of a multi-billion dollar upgrade of its Soviet-era military hardware, partly to keep up with neighbouring rival Pakistan and big-spending China.

The Cabinet cleared the purchase of 22 Apache helicopters and 15 heavy-lifting Chinook choppers, a long-pending deal that was discussed during US Defence Secretary Chuck Hagel's visit to India last August.

"The Cabinet committee on security has given the green signal for the helicopters. The deal is worth US$2.5 billion," a government source told AFP.

Since his sweeping election victory last May, Modi's government has approved a string of military projects that had stalled under the previous left-leaning Congress government, in part over corruption scandals.

Modi has also worked to shore up regional alliances since he came to power in India, which has a longstanding territorial dispute with China over a remote Himalayan region.

Modi, a hardline nationalist premier, wants to end India's status as the world's number one defence importer by instead manufacturing defence equipment locally.

His government has lifted the cap on foreign investment in the defence industry to 49 per cent and pushed tie-ups between foreign and local companies.

The deal comes as Modi heads this week to New York, where he hopes to meet US President Barack Obama ahead of the United Nations General Assembly.

He also travels to Silicon Valley on the West Coast, seeking to promote his country as open for business to help revive the Indian economy.

The deal for the Apaches was "hybrid", with one contract to be signed with Boeing for the helicopters and the other with the US government for its weapons and radars, according to the Press Trust of India news agency.