SonntagsZeitung said the air force wants to assemble the aircraft from kits and parts, under licence from the Swiss company, at a plant in Sulur in southern India.
Pilatus sold 75 of its PC-7 to the Indian Air Force two years ago for 500,000 francs ($549,000), the newspaper noted.
Deliveries from that order are scheduled to be completed by next year.
Employees from Pilatus have travelled to India to visit the plant where more models of the plane would be built and have given their blessing to the deal, Rochelle de Silva, a spokesman for the Indian Air Force, is quoted as saying by SonntagsZeitung.
“We can only confirm that Pilatus has obligations for compensation and is for this reason examining the options,” the company responded.
The Swiss policy for armaments allows so-called “compensation agreements” when a product is not solely paid for with money but also through service or merchandise benefits.
The policy’s aim to boost Switzerland’s industrial base.
The Pilatus spokesperson did not explain how a contracting-out deal could help the Swiss job market.
Parts for the PC-7 Mark II would be fabricated in the city of Hyderbad by Tata Advanced Systems, a subsidiary of the Tata group based in Mumbai.
SonntagsZeitung the deal was put together by Tata Consulting Services, a Swiss IT and consulting services subsidiary based in Zurich-Oerlikon that has bough “dozens of Indian engineers from India to Pilatus headquarters.
Pilatus is based in Stans, the capital of the canton of Nidwalden, where it employs more than 1,600 workers and provides training for 100 apprentices.
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Founded in 1939, it bills itself as the only Swiss company to develop, produce and sell aircraft to customers around the world.
With subsidiaries in Saint Gallen (Switzerland), the US and Australia, the company recorded sales in 2012 of 593 million francs when it sold 86 planes.
In addition to training aircraft it produces a variety of small planes, including its recently introduced PC-24 business jet designed to land on and fly out of unpaved runways.