Modi govt made defence exports jump 700%. Now it must radically reform ordnance factories

PM Modi targets $5 billion in defence exports in next 5 years. If 'Make in India’ reaches its full potential, $10-15 billion is achievable in a decade.

IAF's aerobatics team Surya Kiran rehearses for the Defence Expo 2020, in Lucknow | PTI File Photo

An unsung success story of the Narendra Modi government has been a quantum jump in India’s arms exports. As per the data published by the Stockholm International Peace Research Institute, or SIPRI, in March 2020, India is ranked 23rd in the list of major arms exporters for 2015-2019 and 19th for 2019. The Ministry of Defence’s annual report 2018-19 records that the defence exports were worth Rs 10,745 crore, a growth of more than 100 per cent from 2017-18 (Rs 4,682 crore) and over 700 per cent since 2016-17 (Rs 1,521 crore).

This has been possible due to the Modi government reviewing its arms export policy and streamlining the procedure for granting permission to both public and private companies.

At the inauguration of DefExpo, Lucknow, on 5 February, Prime Minister Modi said, “In 2014, the export of defence equipment from India was about Rs 2,000 crore. In the last two years, it has gone up to Rs 17,000 crore. In the next five years, our target is to increase exports to $5 billion, which is about Rs 35,000 crore.” Modi added that the world’s largest democracy cannot remain dependent on imports for its security.

Is this a realistic and achievable goal? In my view, an export target of $5 billion in the next five years is not only achievable but can even match our current capital outlay for defence of $15 billion in a decade. I analyse the lackadaisical past, the turnaround with effect from 2014, and the way forward for arms exports.

Lackadaisical past

India had inherited a well-established defence production base in the form of 18 ordnance factories that made a major contribution to the British war effort in World War 2. Four were established between 1947 and 1962 and 19 more units came up thereafter, taking the total to 41 as of today. We also had Hindustan Aircraft Limited, Bangalore, which became Hindustan Aeronautics Limited in 1964, and the Naval Dockyard, which was established in 1817 in present-day Mumbai. In addition, a number of defence public sector undertakings (DPSUs) have been established over the years. The modernisation and expansion of these facilities have been painfully slow and have not kept pace with the times.

The fact that we are the second-largest importer of arms in the world reflects on the poor state of our defence manufacturing infrastructure.

It is a truism that a defence industry only focussing on domestic demand cannot sustain itself. Apart from the industry’s poor state, India’s foreign policy and cultural pacifism also did not allow us to become a major arms exporter. Complex procedures to obtain necessary sanctions, particularly by the private industry, further compounded the problem.

India has been exporting arms since 1959 to a select few, friendly countries. The exports were sporadic and technology available was ageing. By 2013-14, our exports were a meagre $113 million (at then exchange rates). The following episodes from the earlier era best illustrate all that was wrong with India’s export policy.

India discarded the French AMX 13 tank — considered obsolete — for want of refurbishing capability of our defence industry in the mid 1970s. It was bought by Singapore as junk and refurbished with a modern fire control system and a 105-mm gun. I saw these tanks fully operational in 2006 when Singapore was carrying out joint training with us at Babina.

Similarly, Centurion tanks in the late 1970s were sold as junk to international vendors who resold them to South Africa, which refurbished them and used them in Angola in mid 1980 with original Indian markings, much to our embarrassment.

In 1994, I was heading the Indian military advisory and training team to set up a Command and Staff College in Zambia. The Zambian army chief made a rather modest request to me for 1,000 military picks and shovels from India. Eager to promote military diplomacy, I met our high commissioner, a former Army officer, and we quickly sent in a request for selling/donating the equipment to the Zambian army. The cost was trivial, approximately Rs 3 lakh, including shipping. Our repeated reminders to the Ministry of External Affairs (MEA) and the MoD received a standard reply — that the matter was under consideration. And it remained under consideration for six months, until it ceased to matter and Zambia imported the equipment from Belgium at 15 times the price.

The turnaround

A specific export strategy for defence did not exist at all until August 2014. Exports were carried out under the Foreign Trade Policy after obtaining a no-objection certificate (NOC) from the MoD. The Modi government hit the ground running and a strategy for facilitating defence exports was formulated and promulgated in September 2014, focussing on export promotion/facilitation and export regulation.

It was decided that India will set up an Export Promotion Body with participation from public and private industry to advise the government, coordinate all export facilitation schemes of the government, and promote exports through specific marketing in target countries. A Defence Export Steering Committee headed by the Secretary, Department of Defence Production — with representatives from the armed forces, DRDO, Planning and International Cooperation Wing, and Acquisition Wings of the MoD, MEA and Director General Foreign Trade — was set up. The functions include taking decisions on export of sensitive equipment, monitoring the progress of defence exports, and suggesting specific steps/strategies to boost exports.

It was decided to include delegations from the public, private and joint venture sectors in bilateral meetings/discussions with friendly countries to inspire confidence in India’s defence products. Indian embassies would also promote defence exports.

Specific incentives were introduced under the Foreign Trade Policy. The Ministry of External Affairs was directed to facilitate a line of credit for foreign countries to import defence products, where feasible defence exports could also be financed through Exim Bank. The offset policy was reviewed and aligned towards integration of weapons/systems in India to enable exports.

The entire procedure for granting NOCs for exports was overhauled and streamlined to make it time bound and user friendly.

This strategy has paid rich dividends with a 700 per cent jump in defence exports. The actual exports could be much higher because since 2014, a large number of products have been removed from the defence products list. Interestingly, the private industry has 60 per cent share in the total exports.

The way forward

While India has made significant progress over the last five years, its share of global arms exports is only 0.17 per cent. This indicates both our below-par performance and the big opportunity that beckons us. The question that arises then is: considering the fact that we are one of the world’s leading importers of medium- and high-end military technology products, can we really seize this opportunity? The answer is an emphatic yes.

Our interim strategy should be to focus on low-end technology weapons and equipment, non-lethal military equipment, and selective medium/high technology equipment like Brahmos missile, Pinaka multi-barrel rocket launcher, Advanced Light Helicopter, naval craft/ships, Akash air defence system and Astra air-to-air missile.

All major 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. If we garner even the non-lethal military equipment market, we can hit the $5 billion mark in five years.

Once ‘Make in India’ reaches its full potential, then we can also focus on full range of medium/high military technology weapons and equipment. If we maintain course, $10-15 billion target is achievable in a decade.

The prerequisite for this is a radical revamp of our ordnance factories and other DPSUs  in terms of modernisation, work culture and quality control. A Government Owned Contractor Operated, or GOCO, model should be put in place for inefficient establishments. There is also a need to create an environment for greater participation of private industry.

Last but not the least, the Modi government must find and appoint an ‘Indian Albert Speer’ to manage India’s defence production. Albert Speer, as the legendary German Minister for Armament and Defence Production during the Second World War, transformed, maintained, sustained and increased arms production against all odds.

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. Views are personal.