India’s defence exports and profiling of future possibility

In recent years, India has successfully exported a range of defence products to various countries including significant platforms such as the Dornier-228 aircraft, Brahmos Missiles, Akash Missile Systems, 155 mm Advanced Towed Artillery Guns (ATAGs), Mine Protected and Armoured Vehicles, PINAKA Rockets & Launchers, Thermal Imagers, Radars, Simulators, Body Armors, in addition to, Line Replaceable Units, and Parts and Components for Avionics and Small Arms. The expanding global demand for India's defence products is evident in the growing interest in platforms like the LCA-Tejas, Light Combat Helicopters, Aircraft Carriers, and MRO (Maintenance, Repair, and Overhaul) activities. In this regard, the measures implemented by the government alongside reforms aim to simplify export procedures, make them industry-friendly, and improve the overall ease of doing business in the defence sector. One notable reform is the introduction of end-to-end online export authorization, which has streamlined the export process and significantly reduced delays. This has facilitated efficient trade and enhanced the competitiveness of Indian defence manufacturers.

Another important development is the implementation of three Open General Export Licenses (OGEL) specifically designed for the defence sector. These licenses cover the export of Parts and Components, Transfer of Technology, and Major Platforms and Equipment. The OGELs provide a streamlined approach, allowing the industry to export specified items to specified destinations listed in the OGEL without the need for additional export authorizations during the validity period of the license. This has simplified and expedited the export process for defence manufacturers, enabling them to respond swiftly to export opportunities. To ensure effective dissemination of export leads and opportunities, the government has established an online portal that provides real-time updates to registered Indian defence exporters. This portal serves as a platform for sharing export leads received from various countries, allowing defence manufacturers to promptly respond to potential export opportunities.

The government is committed to actively promoting Indian defence products in the global market. Regular reviews are conducted with Indian Missions abroad to enhance the promotion and facilitation of Indian defence exports. These reviews provide an opportunity to engage with foreign stakeholders, explore potential partnerships, and showcase the capabilities and quality of Indian defence products. Moreover, to foster collaboration and knowledge-sharing, more than 40 webinars have been organized with Friendly Foreign Countries (FFCs) in partnership with industry associations. These webinars serve as a platform for dialogue, exchange of information, and building strong relationships between Indian defence manufacturers and their international counterparts [1].

Background of Indian Defence Exports:

The government emphasizes the importance of self-reliance and indigenous development in the defence sector, citing strategic and economic benefits. They believe that the collaboration between Indian industry, academic institutions, and research organizations, combined with advancements in technology, has facilitated the achievement of this objective. Despite significant progress in defence technology and industrial capabilities, India still lags in terms of developing new products and expanding production capacity. Relying solely on domestic demand would restrict investment opportunities in research and development (R&D) and production within the domestic defence industry.

To address this, there is a need to encourage investment in the defence sector, with more focus towards R&D and production, and indigenization. While establishing the necessary policy framework and procedural mechanisms, the focus will be on promoting indigenous production and exploring opportunities for exporting to other nations. It is crucial to recognize that defence technology requires long-term investments and faces the risk of becoming obsolete with limited economies of scale. Therefore, simply maximizing indigenous production without adequate support for R&D as an export strategy may not yield the suitable outcomes [2]. Thus, the policies around defence industrial production should be complemented with a strategic framework for defence exports in order to sustain the economic foundation of the defence industry in the current competitive economic landscape.

India's defence manufacturing sector faces a significant weakness due to the absence of a strong institution that can provide a long-term roadmap for the industry, set industry targets, monitor progress, and unite all stakeholders towards the common goal of self-reliance. Without such an institution, crucial decisions with far-reaching consequences are made by different stakeholders in a fragmented manner, often conflicting with one another. For example, the armed forces prioritize acquiring equipment quickly, regardless of its origin, while the Defence Research and Development Organization (DRDO), seems focused on continuous design and development efforts, disregarding timelines, and budgetary constraints. The defence production agencies, largely government-owned, appear content with manufacturing without having control over the necessary technology. This results in the loss of focus towards achieving self-reliance and the process goes back to importing [3].

Defence Export Strategy:

Until August 2014, there was no specific export strategy in place for defence products. When it came to defence-related equipment, the Directorate General of Foreign Trade (DGFT) had to obtain a No Objection Certificate (NOC) from the Ministry of Defence (MoD). Several factors were considered when granting the NOC, including the Wassenaar Arrangement Munitions List (waML) as a reference since India had not yet established its own "defence products list." In addition to that, the comments and input of stakeholders, including the defence forces, were considered as needed [4]. MoD used to receive proposals from the DGFT for the issuance of NOC to allow the export of various defence products, such as radars and missiles, to friendly foreign nations. However, there were no specific guidelines or a comprehensive list of items available as a reference to aid decision-making in this regard. In 2014, the Government, in collaboration with all relevant stakeholders, took the initiative to identify defence items suitable for export and establish guidelines to facilitate the issuance of export licenses. The finalized list of defence items was determined by the MoD and officially announced by the Department of Industrial Policy and Promotion (DIPP) under the Ministry of Commerce and Industry. Subsequently, these guidelines were also applicable for the evaluation of proposals concerning the export of defence products.

The aim of the defence export strategy is to provide a significant boost to the "Make in India" initiative in the defence sector while also strengthening India's influence on the international stage. Since there was already an existing overall Export Policy in the form of the Foreign Trade Policy (FTP), it was unnecessary to create a separate Defence Export Policy. However, there was a genuine need to establish a specific strategy within the framework of the FTP to facilitate defence exports. In September 2014, the government formulated and implemented this strategy. This strategy primarily emphasizes on promotion of defence exports and its facilitation, as well as regulation.

Rise in Indian exports of defence products:

In recent years, India has made significant progress in reducing its reliance on imports, distinguishing itself as the only country among the world's top nations to achieve this. From 2017 to 2021, India experienced a notable 21% decrease in imports compared to the previous period of 2012 to 2016. This achievement can be attributed to the efforts of the private sector and PSUs to prioritize indigenous design and manufacturing of defence equipment.

According to the MoD, India's arms exports have witnessed a remarkable six-fold increase since 2014, amounting to Rs. 11,607 crores (i.e. USD 1.5 billion) during the fiscal year 2021-22. This rise in exports can be attributed to various government-led reforms aimed at boosting defence exports and improving the overall ease of doing business in the sector. One significant milestone in India's defence export journey was the signing of a crucial deal with the Philippines worth USD 375 million (i.e., Rs. 2,770 crore) for the export of the Brahmos supersonic cruise missile. This agreement was expected to pave the way for India's defence exports to other Asian countries like Indonesia and Vietnam [5].

Further rise in the financial year 2022-23 led to India exporting Rs.15,920 crore in military hardware. In March of this year, the MoD finalized contracts valued at approximately Rs.52,000 crore for the procurement of various military equipment manufactured within the country. These acquisitions encompassed a range of items, including basic trainer aircraft, an army satellite, training ships, medium-power radars, radar warning receivers, air defence systems, and Dornier aircraft. The allocation of the defence budget towards domestic procurement has reached an unprecedented level. For the fiscal year 2022-23, India has earmarked 68% of the military's capital acquisition budget specifically for indigenous purchases. This year, a substantial amount of Rs.1 lakh crore has been dedicated to domestic procurement, reflecting a significant increase compared to the allocation of Rs.84,598 crore, Rs.70,221 crore, and Rs.51,000 crore in the preceding three years [6].

These developments highlight India's growing prowess as a defence exporter and its expanding market reach. The government's proactive approach, coupled with strategic export deals and diplomatic engagements, is positioning India as a reliable and competitive player in the global defence market. With sustained efforts and continued reforms, India is well-positioned to further expand its defence exports and contribute to the growth and self-reliance of its defence manufacturing sector.

Export Promotion Council (EPC):

Alongside the objectives of the Make in India initiative, the Indian government has taken significant steps to establish an Export Promotion Council (EPC) that actively promotes defence exports. This aims to reduce the country's reliance on imports and foster the indigenous design and manufacturing of defence equipment by both private sector entities and state-owned companies.

To simplify the export procedures for defence equipment and technologies, the Indian government has introduced various measures. The introduction of the India Defence Mart, an online portal, allows defence companies to conveniently apply for export licenses and track the progress of their applications in real-time. Additionally, the government has worked on streamlining the process of obtaining no-objection certificates (NOCs) from the relevant agencies involved in the export process. These efforts have reduced bureaucratic obstacles and made it easier for companies to engage in defence exports. To incentivize defence exports, the government has implemented the Scheme for Promotion of Defence Exports (SPDE) scheme which offers financial support to defence companies participating in international defence exhibitions and facilitates the marketing and publicity of Indian defence products abroad.  Further, the Technology Upgradation Fund Scheme (TUFS) aims to modernize the defence industry at the domestic level by providing financial assistance for the technological upgrading and modernization of manufacturing facilities, enabling Indian defence companies to enhance their capabilities and competitiveness.

Recognizing the importance of international collaborations, the government has introduced the Strategic Partnership Model aiming to boost defence production through partnerships with foreign companies domestically. By fostering joint development efforts, these partnerships facilitate the transfer of advanced technologies and the creation of innovative defence products. Notably, India and Russia have collaborated on the development of a hypersonic version of the BrahMos missile, highlighting the success of such partnerships and their potential for future growth. The Defence Offset Policy is another significant initiative implemented by the government which requires foreign original equipment manufacturers (OEMs) that secure contracts above a certain threshold to invest a specified percentage of the contract value in Indian businesses as offsets. By encouraging technology transfer and domestic production, this policy enhances India's defence capabilities and contributes to the growth of the domestic defence industry [7].

Future Projections:

During the Mega Aero India 2023 held in February, PM Narendra Modi in his address, reaffirmed the government's determination to significantly boost defence exports in the coming years outlining a target of surpassing USD 5 billion worth of military hardware exports by 2025, a substantial increase from the approximately USD1.5 billion recorded in 2021-22. This ambitious goal underscores India's commitment to becoming a major player in the global defence market.

To support this objective, the Indian government has implemented several measures aimed at promoting self-reliance and boosting the capabilities of the domestic defence industry. One notable step has been the imposition of a ban on the import of more than 300 defence systems and sub-systems. By curbing imports in these areas, India aims to nurture and empower local defence manufacturers, fostering indigenous production and reducing dependence on foreign suppliers. As part of the efforts to promote domestic players, India has implemented a ban on the importation of more than 300 defence systems and sub-systems. The intention behind this measure is to enhance the capabilities of local defence manufacturers. By encouraging domestic production, India can create job opportunities, stimulate economic growth, and enhance its defence capabilities [8]. However, the road to achieving self-reliance in the defence sector has faced certain challenges, and progress has been relatively slow. Recognizing the importance of attracting investments to bolster the defence industry, the Indian government has also introduced regulatory changes to facilitate investments in the sector. These reforms aim to create a favourable business environment, making India an attractive and reliable defence partner for international companies.

The goal is to leverage foreign expertise, technology, and capital to enhance indigenous defence capabilities, while also promoting joint ventures and collaborations with foreign partners. Sustained efforts are required to strengthen the domestic defence manufacturing ecosystem, improve research and development capabilities, and address logistical and bureaucratic challenges. Additionally, nurturing a skilled workforce and promoting innovation will be crucial for achieving long-term success in the global defence market.

The defence equipment market is highly competitive and dominated by major players such as the USA, Russia, China, France, and Germany, who collectively hold a significant share of 77% in global arms exports. In contrast, India's contribution to defence equipment exports remains low out of the top 25 major arms exporters, according to SIPRI. To improve its position in the global defence market, India should leverage the expertise and knowledge of defence attaches stationed in various Indian missions abroad. These defence attaches possess valuable insights and can effectively communicate the qualities and capabilities of Indian defence systems. Additionally, fforts should be made by India's foreign missions and the Ministry of External Affairs (MEA) to actively seek and secure orders for defence equipment [9]. By utilizing the services of these defence attaches and actively pursuing procurement opportunities through diplomatic channels, India can enhance its presence in the global defence market. This approach can help showcase the strengths and competitive advantages of Indian defence systems, thereby attracting potential buyers and increasing India's share in global defence exports.

It is crucial for India to recognize the significance of promoting its defence equipment on the international stage. This entails effectively highlighting the quality, reliability, and cutting-edge capabilities of Indian defence systems through diplomatic channels and engaging with potential buyers. By proactively engaging with foreign governments and organizations, India can tap into new markets and expand its reach in the highly competitive defence equipment sector.

Conclusion:

The transformation of India from a defence importer to an exporter is a testament to the progress and growth of the country's defence industry where the government's efforts to simplify export procedures, establish specific licenses, enhance information sharing, and promote Indian defence products have been instrumental in driving this transformation. These initiatives not only boost defence exports but also further contribute to the broader goal of the "Make in India" initiative by strengthening the self-reliance and indigenous capabilities of the defence manufacturing sector. As India continues to enhance its defence export capabilities, it is poised to become a significant player in the global defence market and India’s ability to export advanced quality and cost effective defence platforms makes it an attractive partner for defence procurement.

Endnotes:

1.       Press Information Bureau, “Aatmanirbharta on the rise…” Ministry of Defence, 01 April 2023 https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1912885

2.     “Strategy for Defence Exports,” Department of Defence Production, Ministry of Defence, https://www.ddpmod.gov.in/sites/default/files/STRATEGY%20FOR%20DEFENCE%20EXPORTS.pdf

3.      Laxman Kumar Behera, “Make in India for Defence: A Roadmap”, IDSA Policy Brief, MP-IDSA, 05 February 2015, Accessed from https://www.files.ethz.ch/isn/187863/MakeinIndiaforDefence_lkbehera_050215.pdf

4.     Sushil Chander, “India’s Defence Exports: Status, Strategy and Solution,” Manekshaw Paper No. 83, Centre for Land Warfare Studies, 2019 https://www.claws.in/static/India%E2%80%99s-Defence-Exports.pdf

5.     “The Rise of India;s Defejce Exports”, Case Study, India Brand Equity Foundation, August 2022 https://www.ibef.org/research/case-study/the-rise-of-india-s-defence-exports

6.     Rahul Singh, “India’s defence exports reach Rs.15,920 cr in 2022-23, tenfold jump in 6 years”, Hindustan Times, 01 April 2023 https://www.hindustantimes.com/india-news/indias-defence-exports-hit-record-high-of-rs-15-920-crore-in-fy-2022-23-a-tenfold-increase-since-2016-17-thanks-to-make-in-india-reforms-101680344018909.html

7.     Jayant Kumar Roy, “Exploring the Rise of India’s Defence Exports”, Invest India, 24 April 2023 https://www.investindia.gov.in/team-india-blogs/exploring-rise-indias-defence-exports

8.     “USD5 billion export target by 2025”, Times of India, 13 February 2023 https://timesofindia.indiatimes.com/india/5-billion-export-target-by-2025-modi-govts-push-to-turn-india-into-worlds-defence-manufacturing-hub/articleshow/97874264.cms?from=mdr

9.     Jai Kumar Verma, “Will India achieve its defence export target fixed for 2025”, Aviation and Defence Universe, 18 October 2022 https://www.aviation-defence-universe.com/will-india-achieve-its-defence-export-target-fixed-for-2025/

Pic Courtsey- Brahmos Centre

(The views expressed are those of the author and do not represent views of CESCUBE.)