NEW DELHI (Reuters) -France's Dassault Aviation and India's Tata Advanced Systems have agreed to manufacture the fuselage of the Rafale fighter aircraft in India, the companies said on Thursday, the first time it will be produced outside France.

India, the world's biggest arms importer, has been looking to step up domestic production and boost defence exports, which jumped 12% in the fiscal year to end-March, to $2.76 billion.

Tata will set up a production facility in the southern city of Hyderabad to manufacture key structural sections of the Rafale as part of the agreement, the companies said in a statement.

The first fuselage sections are expected to roll off the assembly line in the 2028 financial year, with the facility expected to deliver up to two complete fuselages per month, they said.

The statement did not say how much the deal was worth nor whether the finish products would be for domestic use or export, but Tata Advanced Systems said on X that the fuselage would be "for India and other global markets".

The Indian Air Force currently operates 36 Rafale fighters. India also signed a deal in April with France - its second-largest arms supplier - to buy 26 naval versions of the jets for $7 billion, which are expected to be delivered by 2030.

The South Asian nation is looking to modernise its military and boost domestic weapons' production, particularly to strengthen its defences against neighbours Pakistan and China.

India used fighter jets in four-days of fierce clashes with Pakistan last month, after a deadly attack by Islamist assailants that killed 26 men in Indian Kashmir.

Pakistan's defence minister had said three of India's Rafale fighter jets had been shot down during the fighting but did not share any evidence.

One U.S. official told Reuters that at least one downed Indian aircraft was a Rafale. Dassault Aviation had declined to comment.

India's chief of defence staff told Reuters in an interview last week that India suffered losses in the air, but declined to give details.

($1 = 85.7970 Indian rupees)

(Reporting by Sakshi Dayal; Editing by YP Rajesh, Kirsten Donovan)

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