American firm Lockheed Martin has signed an agreement with Tata Advanced Systems to build fighter jets in India amid intense competition among foreign defence firms to snag business worth billions of dollars from the world's largest importer of arms.
Analysts said the competition among foreign companies would be beneficial to India as it looks at modernising its military while trying to boost its domestic defence manufacturing.
The Narendra Modi government is looking to replace ageing planes, like the Russian made MiG-21s, as part of a military modernisation drive aimed at boosting its defences amid border rows with neighbours Pakistan and China.
A single-engine fighter jet deal, which could see India acquiring over 100 planes, alone is potentially worth billions of dollars.
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Lockheed Martin - hoping to get an edge over its competitors like Swedish firm Saab - on Monday signed the agreement with the Indian firm "affirming the companies' intent to join hands to produce the F-16 Block 70 in India".
Saab, which is also competing for the fighter jet deal with its Gripen jets, has also said it will set up its own production facility in India.
The Indian government has yet to choose a supplier for its acquisition of the single-engine fighter jets.
The F-16 Block 70, the firm said in a release, is the most advanced version of the F-16s, with the deal providing "India the opportunity to produce, operate and export F-16 Block 70 aircraft".
The announcement comes just days before Prime Minister Modi heads to the United States for his first face to face meeting with President Donald Trump on June 26.
The defence relationship between the two countries - which includes joint military exercises - has become the cornerstone of the bilateral relationship. Yet there is also the possibility of some differences as both leaders want to push domestic manufacturing and create local jobs. Mr Modi has launched a Make In India programme while Mr Trump has been pushing an America First policy to keep jobs at home.
Lockheed Martin said the deal would support supplier jobs in the US and new manufacturing jobs in India, as the firm looks to shift its production line from Fort Worth, Texas to India.
"They have to sell it in the domestic context that they are creating jobs back in America. The America First and Make in India policies can be problematic. It is not clear what kind of jobs would be created in America," said Dr Rajeswari Pillai Rajagopalan, a senior fellow at the Observer Research Foundation.
"Lockheed Martin is hoping the decision is in their favour and they are trying to make a strong case. At the end of the day, choosing the defence platform will also be a political decision (by India)," she added.
India's military modernisation has taken place in fits and starts, leaving a gap between its growing ambitions as a regional power and capabilities. Mr Modi has promised to give defence modernisation the highest priority and has opened up the defence sector to 100 per cent foreign investment.
Analysts say the growing competition for defence contracts would be good for India.
"We (India) are in the drivers' seat because nobody around the world is buying so many fighter jets... if you want to sell to India you have to make in India. This will generate employment as factories are set up. Secondly, ancillary industries will come up. The hope is that research and development will take off from here," said distinguished fellow at the Centre for Air Power Studies Manmohan Bahadur.