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GROWING DEFENCE EXPORT

The Indian defence export's graph has started mounting year-on-year. On one hand it is good for the country's foreign reserves; on the other hand it will surely benefit manufacturers as requirements of the Indian Armed Forces alone are unlikely to provide the economy of scale. Moreover, the imports have started falling slightly, but in the long-run will definitely make a big impact.

The Government of India launched the Make in India campaign in 2014 with the objective to boost manufacturing and generate employment by focusing on 25 sectors, including defence. Going by demonstrated performance it seems, the rhetoric on the "Make in India" policy with greater private sector participation in the defence production sector will take several years if at all to materialize on the ground. The objectives for the defence sector and mean and measures adopted for promoting self-reliance, indigenization, achieving economies of scale, developing capabilities for export, transfer of technology and domestic research and development have yet to show results. It will need sweeping systemic reforms to revive the country's Department of Defence production and DIB from its prolonged stupor. The defence ministry is now working to streamline the complicated indigenous defence production policy. There is an attempt, for instance, to revive the provision for the government to fund 80% of the development cost of a weapon prototype, with the industry chipping in with 20%, in "high-risk projects".

With all the euphoria, as of now India is the world's largest importer of major arms in 2011-16, accounting for 14 per cent of the global total, as per recent SIPRI data. The arms import increased by 43 per cent between 2006-10 and 2011-16. India imports nearly 60% of its defence equipment, spending close to $6.4 billion every year.  However, it is indeed saddening to notice that when it comes to the export of defence equipments, the figures are negligible. As per SIPRI trend indicators:

India has become the world's fourth largest spender on defence, following a 13.1% increase in its 2016-17 defence budget. Pre or post liberalization, the defence export scenario in India, has witnessed a very little growth. India has one of the largest defence industries in the developing world. It consists of Forty-One Ordnance Factories (OFs), Nine Defence Public Sector Undertakings (DPSUs) and emerging private sector. The industry has not managed to attain self reliance leave alone exports where it has performed miserably. India's target of achieving self reliance is reflected in the comparative Export-Import chart where it is clear that we export only about 1.65 percent of import level.

On the other hand, at present India ranks 28th in the arms exporters list based on the volume of arms transferred. Further, in the past, India's defence exports have ranged between 1.5-2.4 percent of the total production, with an import: export ratio of 194:1, as compared to 1.3:1 in the case of Israel, 8.8:1 in the case of South Korea and 19.7:1 in the case of Singapore. The average share of Indian arms exports in the total world's arms exports pie stands merely 0.8 percent.

Export Potential

A vibrant domestic defence manufacturing sector will build strategic domestic depth in key sectors and also allow the economy to tap into export potential in the defence sector. This would be further beneficial not only in terms of improving export balance, but also further accentuating the job creation potential of the sector. The details of the defence equipment exported to various countries by Defence PSUs, Ordinance Factory Board (OFB) and Private Sector Companies (based on the NOCs issued) are as shown in the Figures.

While India exported forging equipment, electronic assemblies, flight control panels to the US, it sold transmitting tubes to the UK and MIG and Sukhoi 30 aircraft spares and services to Russia.

Major exports from India included Cheetal helicopters to Afghanistan, Dhruv helicopters and bulletproof jackets to Nepal, Sukhoi 30 avionics and MIG spares to Malaysia, offshore petrol vessels and ammunition to Mauritius and Jaguar aircraft spares and services to Oman.

Thrust on defence exports bring in economical advantage, it will also help India build its might in the region. DRDO is looking at opportunities to export previous versions of defence products, as it makes better or advanced versions for indigenous consumption. DRDO even keen to design and develop exclusively for somebody at lower costs. As indigenous production move towards upgrades of their products, the early versions could be customized and offered along with technologies to friendly and neighboring countries.

India is looking at countries like Vietnam, Mauritius, Bangladesh, Philippines, Afghanistan and Oman to export defence equipment. The items that India is looking to export include bridging equipment, missiles, warships, Off-Shore Patrol Vessels (OPVs), Self Propelled Artillery Guns (SP Guns), Oman is keen to import border fencing equipment from India.

Way Forward

The country's export performance has always been way off the mark, however, taking into consideration the resource potential and technical know-how with the industry, it has all the attributes of becoming a major exporter of defence equipments. Though the Directorate General of Foreign Trade (DGFT) is the authority that regulates India's export policy, however, export of  Defence items  is governed by a regime administered by the MoD in consultation with the Ministry of External Affairs apart from the DGFT. The Government need to takes some concrete steps with regard to rigid export policies, clearing the ambiguities involved in export procedures/defence items, long procedural delays in getting export license & clearance along with heavy taxes. The government should understand that encouraging exports would not only provide economy of scale but would also make domestic defence manufacturers globally competitive.

One of the most important pre-requisite for any enterprise aiming for an Export market is to become globally competitive, have technical capability & capacity to produce. It requires following steps:

  • The Indian defence industry needs to invest in industrial and technological capabilities with increased capacity to be able to become part of global supply chain.
  • The Govt needs to address the impediments for defence exports and incentivize the private industries.
  • Public sector needs to be competitive rather than being nominated.
  • Encourage and give incentive for the collaboration between the Public & Private sector companies for defence exports based on a PPP model.
  • Most of the infrastructure & facilities are under Govt domain which needs to be shared/made available to private players as export can take place only for tested and proven equipment

Strategy for Defence Exports

The Indian Department of Defence Production (DDP) has released the “Strategy for Defence Exports” (SDE) to create institutional mechanisms and procedures within the overall ambit of the FTP for facilitating arms exports. Some of the features include:

  • To implement specific incentives and promotion schemes for defence exports.
  • A separate strategy to finance the exports to weaker countries would be worked out in consultation with MEA, EXIM Bank, DPSUs, private sector and other financial institutions.
  • The Policy may also be reoriented towards acquisition of critical technologies required for high end weapons/platforms so that the same can be leveraged for export.
  • A web based system would be developed to receive applications for NOC online and convey the NOC to the company's online.

Further, Defence Exports Steering Committee (DESC) headed by the defence secretary will have representatives of Armed Forces, DRDO, PIC Wing, Acquisition Wing, MEA, and DGFT. To assist DESC a Standing Committee with Joint Secretary, (JS DIP) as head will look after routine decision-making for exports. The DESC will:

  • Take appropriate decisions regarding exportability of item with/without modification or degradation for indigenously developed strategic and sensitive weapons/platforms. Export of such items would be considered on case to case basis.
  • Monitor the progress in defence exports
  • Suggest specific measures/strategies to boost exports
  • Identify the suitable export markets in consultation with the MEA and department of commerce, keeping in mind the country's foreign policy and various international export control and arms control regimes.
  • No separate defence export policy, but to adapt specific strategy to encourage defence exports within the overall ambit of FTP.

Export Promotion Body (EPB) members are planned to be drawn from the industry as well as they will be an advisory body which is yet to be set up. The domain will:

  • Render advice to the government on various export related issues.
  • Coordinate all export facilitation schemes of the government.
  • Increase awareness among the industry about various export facilitation measures.
  • Promotion of export through specific marketing efforts in targeted countries.
  • Liaise with the Ministry of External Affairs (MEA) and the Department of Commerce to ensure compliance.

Conclusion

The export of defence equipment is steadily growing and need boost in terms of incentives. The “Make in India” programme for defence equipment is likely to be viable only, if there is a significant export component to it; the requirements of the Indian Armed Forces alone are unlikely to provide the economy of scale. Until now arms exports were moot given the ineffective public sector units, which can barely provide the requirements of the armed forces but as private companies are stepping in, defence exports will see a new beginning.

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