India’s defence exports increased tenfold in the last six years from Rs 1,521 crores in the financial year 2016-2017 to Rs 15,921 crores in 2022-2023. Even in dollars—both at the 2016-17 and current prevailing rate—the growth from $ 0.22 billion to $ 1.94 billion is very impressive. The Narendra Modi government’s path-breaking reform of Aatmanirbharta in defence and its liberal arms export policy is responsible for this success story.
Two years ago, on 5 February 2020, Prime Minister Narendra Modi set an ambitious target for defence exports.
“In the next five years, our target is to increase exports to $5 billion,” he had said.
In fact, a target of $10 billion in a decade to garner 2 per cent of the world market from the current 0.2 per cent is within the realm of reality. But we also have the dubious distinction of being the biggest defence importer in the world for a decade.
I examine the current state of India’s defence exports and what more can be done for it to be among the top ten arms exporters.
Also read: Defence exports, at all-time high of Rs 16,000 crore, include made-in-India ATAGS
Strategy for defence exports
India has been exporting arms since 1959 to a select few, friendly countries. The exports were sporadic, and technology was constantly ageing. By 2013-14, our exports were a meagre $110 million (at then prevailing exchange rates). A defence export strategy did not exist until August 2014. Exports were carried out under the Foreign Trade Policy after obtaining a no-objection certificate (NOC) from the Ministry of Defence [MoD]. In September 2014, the Modi government formulated and promulgated a Strategy for Defence Exports. It focused on export promotion/facilitation, and regulation.
A defence export steering committee headed by the Secretary, Department of Defence Production was set up with representatives from the armed forces, DRDO, Planning and International Cooperation and Acquisition Wings of the MoD, Ministry of External Affairs and Directorate General of Foreign Trade. The committee’s functions include taking decisions on export of sensitive equipment, monitoring the progress, and suggesting specific steps or strategies to boost exports.
Delegations from the public, private and joint venture sectors of the defence industry held meetings with friendly countries to inspire confidence in India’s defence products. Indian embassies also actively promoted defence exports. Specific incentives were introduced under the Foreign Trade Policy. The Ministry of External Affairs extended the line of credit for developing countries to import defence products. India Exim Bank facilitated finance for defence exports. The offset policy with respect to defence imports was reviewed and aligned towards the integration of weapons/systems in India. The government has even started a policy by specifying Open General Export Licence (OGEL).
Defence Acquisition Procedure was refined and formalised in 2020, with focus on ‘Make in India’. As part of the government’s ‘Aatmanirbhar Bharat Abhiyan’, self-reliance and boost in defence exports became a key policy goal. Four Positive Indigenisation Lists for a total of 411 items of defence weapons and equipment have been promulgated since 2020.Seventy-five per cent (approx. Rs 1 lakh crore) of the defence capital procurement budget has been set aside for the domestic industry in the financial year 2023-24, up from 68 per cent in 2022-23.
Greater impetus has been given to defence expos, Aero India shows and conferences/conclaves with the primary focus on showcasing India’s defence industrial base and promoting exports.
The erstwhile Ordnance Factory Board has been corporatised into seven new Defence Public Sector Undertakings (DPSU). And there’s a concerted effort to modernise the DPSUs.
Also read: India’s defence exports will rise up to Rs 40,000 crore by 2026: Rajnath Singh
Export dividends
The policy of the government to boost defence exports has started to reap dividends. At the Combined Commander Conference (CCC) held in Bhopal on 1 April, both the PM and the defence minister highlighted the achievements with respect to ‘Make in India’ and the quantum jump in defence exports.
India now exports “major platforms like Dornier-228, 155 mm Advanced Towed Artillery Guns (ATAGs), Brahmos Missiles, Akash Missile System, Radars, Simulators, Mine Protected Vehicles, Armoured Vehicles, PINAKA Rockets & Launchers, Ammunitions, Thermal Imagers, Body Armours, besides Systems, Line Replaceable Units and Parts & components of Avionics and Small Arms,” said the government on 1 April.
Good but not good enough
India’s logical goal should be to become a defence manufacturing hub and one of the top 10 arms exporting countries with exports worth $10-15 billion. Ironically, as per SIPRI, India still remains the world’s top arms importer for the period 2018-22 even though its imports declined by 11 percent for the same period. Despite the surge in exports, India’s share of the arms market which equaled 0.2 per cent in SIPRI’s 2022 report, has fallen off its charts in the latest report covering the five-year period 2018-2022. The private sector accounts for only 21 per cent of the exports. 79 percent of the exports are from Defence Public Sector Undertakings, erstwhile Ordnance Factory Board and other public sector undertakings/ joint ventures.
In order to boost defence exports, India has to focus on a full range of medium and high military technology weapons and equipment like Brahmos missile, Pinaka multi-barrel rocket launcher, Advanced Light Helicopter, naval craft/ships, Tejas fighter aircraft, Akash air defence system, Astra air-to-air missile, radars and artillery guns. However, our exports in this field are currently limited and not competitive. And our market is restricted to countries with poor paying capacity who have to rely on our credit line. The situation is unlikely to change until our weapons/equipment becomes more competitive in terms of quality.
‘Make in India’ is still in the nascent stages and without government support in terms of firm domestic orders and financing of research and development, the private sector is unlikely to play a major role. In the interim, we should continue to focus on export of low-end technology weapons/equipment and non-lethal military equipment. All developing countries maintain their own military and police forces. Relatively poor countries in Africa and the Middle East, without any manufacturing base, import military equipment from Western countries, China and Russia at rates that they can ill afford. Our endeavour should be to garner the small arms and non-lethal military equipment market, which by itself can enable us to reach the $5 billion target.
Unless the quality of our weapon systems improves, our exports will not be competitive. Four out of seven Advanced Light Helicopters sold to Ecuador in 2008, in the face of stiff competition, crashed within a few years — the first one during the Ecuadorian national day parade.
At present, our investment in research and development is inadequate. We need to take full advantage of the US-India initiative on Critical and Emerging Technology (iCET) to elevate and expand our strategic technology partnership and defense industrial cooperation, both for the private and the public sector.
To sum it up, the government deserves kudos for the quantum jump in defence exports. However, its claims are still high on rhetoric and low on substance. It is on the right track but still has miles to go.
Lt Gen H S Panag PVSM, AVSM (R), served in the Indian Army for 40 years. He was GOC in C Northern Command and Central Command. Post-retirement, he was Member of Armed Forces Tribunal. He tweets @rwac48. Views are personal.
(Edited by Ratan Priya)