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US air power: Made in India?

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"We have a global supply chain that looks at capabilities around the world," says Orville Prins, a vice president at Lockheed Martin. "We intend to build those relationships [in India] on a long-term basis and make them part of our team so we can be more globally competitive."

Boeing's lead executive on the bid, Rick McCrary, sees potential for Indian aerospace companies: "If they are cost-effective, they have every opportunity to become part of our supply chain." India already builds "significant components" for commercial aircraft for Boeing, he notes.

If a US firm lands the deal, new US-based jobs will follow – in the short term. Mr. Prins sees some 35,000 US-based jobs if India taps Lockheed-Martin's F-16.

India's maturing industry

But as India's industries mature, the more than 500,000 US jobs in the sector could be affected, just as the information-technology sector felt the pinch after the rise of India's computer services firms.

India is forcing the issue through a mechanism known as an offset, which it instituted in 2005. Any major purchase of foreign defense equipment triggers a requirement that a portion be spent in India. For the jet fighter deal, the 50 percent offset means half of the roughly $10 billion price tag must be spent here. With the third-largest defense procurement budget in Asia, according to Global Defense Offset Review, India can demand that.

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