Defence export needs cohesive policy thrust

Defence export is rising. Indian defence entities secured two mega orders– BrahMoS missile and Artillery Gun Platform. But there requires a cohesive policy thrust to achieve the ambitious target by 2035.

Brahmos missile
Brahmos for export . credit: Reuters

India stands at fourth position among 12 countries of the Indo-Pacific in self-reliant defence production, which is based on the reports published by the Stockholm International Peace Research Institute (SIPRI). India’s defence exports reached to Rs 13,000 crore in the Financial Year 2021-22 (FY22). While China surged ahead in the list, making rapid stride in the list.

It is estimated that the value does include the Rs 2,770 crore contract in January this year to export BrahMoS supersonic missiles to the Philippines.

Building upon the breakthrough, Kalyani Strategic Systems Limited, a wholly-owned subsidiary of the Company, has been awarded an export order for a 155mm Artillery Gun platform to be executed over a 3-year timeframe. The total value of the order is $ 155.50 Million.

This order is to a non-conflict zone, is a great testament of the capabilities shown by the private defence company. The result is defiantly the outcome under the sustained push to promote exports of Indigenously Designed Developed and Manufactured (IDDM) advanced defence platforms from India.

Defence minister Rajnath Singh has emphasized many time that India will target annual defence exports of Rs 35,000 crore by the end of FY 2025.  But the most ambitious is the plan where India will strive to be amongst top five countries globally in defence production in the next 25 years.

The global arms export

Ironically, while India relied heavily on the defence import, there was hardly any direction or set benchmark target for the defence export until the launch of Defence Production Policy.

The Defence Production Policy (DPrP) 2018 came out of bolt. In a first, DPrP set the direction to achieve 35,000 crore ($5 billion) by 2035.

The world of defence export is heavily based on the cutting-edge research and development for the ever-changing nature of conflicts which demand next generation technological base. That is more towards the scale of production based on precision in-line set up to be able to deliver on time.

Defence Export India

It is important to note that the Indian defence industry is still in the phase that primarily aims to cater the Indian Armed Forces.

Despite the constraints, it is pertinent to highlight those exports reached a high of Rs 13,000 crore in 2021-22. While the number is derived on low-base, it is still a significant growth by any yardstick.

But the larger question is about the next cycle of growth in defence export.  Simply to put it straight, to achieve the $ 5 billion export mark, India needs a three-fold increase for meeting the DPrP-2018 export target.

How the global arms industry works?

The majority of defence purchase is confined among few global entities which make the 80 percent of total sales worldwide. According to the Sweden-based Stockholm International Peace Research Institute (SIPRI), U.S., Russia and France accounted for 69 percent of the global exports at 39 percent, 19 percent and 11 percent respectively.  Again, while China is still not in the top, it is reaching fast. According to the senior defence analyst, the reason that China is still catching up, is due to its own domestic demand and the constant upgradation under the modernization drive. Along, there is no doubt that China has almost achieved the industrial capabilities to match the scale of production with full range of military platforms and systems across the domains. Overall, China’s share in global arms is about 6 percent and it does include heavy platforms/equipment, including combat jet.

In the ranking, India stands at the bottom with Czechia and Jordan where the private sector companies accounted for 70 per cent of these exports.

About 50 Indian companies in the private sector have contributed to defence exports. Some of the major export destinations for defence products have been Italy, Maldives, Sri Lanka, Russia, France, Nepal, Mauritius, Sri Lanka, Israel, Egypt, UAE, Bhutan, Ethiopia, Saudi Arabia, Philippines, Poland, Spain and Chile etc. The major defence items being exported are Personal Protective items, Offshore Patrol Vessels, ALH Helicopter, SU Avionics, Bharati Radio, Coastal Surveillance Systems, Kavach MoD II Launcher and FCS, Spares for Radar, Electronic System and Light Engineering Mechanical Parts etc.

Defence Export of US, Australia, UK, Russia

In the first tranche, India has cleared 156 defence equipment for exports including the indigenous Light Combat Aircraft Tejas, artillery guns, battle tanks and missiles, anti-tank mines and explosives.

Defence export policy

The defence export has taken off but how does the policy work around the process? Ministry of Commerce & Industry already has an overall Export Policy in the form of Foreign Trade Policy (FTP), which, inter-alia, includes various export promotion schemes, duty/ tax exemptions and other facilitative measures. According to the Ministry of Defence, therefore, there may not be a need for having a separate Defence Export Policy.

So, the policy revolves around supporting industry in Testing and Certification. In case of private entities, it offers the military infrastructure and labs under DRDO. While this is a god step in the direction, the export of military equipment does demand international certification and testing. That poses challenges in the final cost evaluation in the competitive global market.

Lines of Credit for Defence

The Ministry of External Affairs has been granting various Lines of Credit to the friendly foreign countries. While this remains underutilized, there are some good examples where industry has worked around.

Recently, India handed over 12 High Speed Guard Boats to Vietnam. The boats have been constructed under the Government of India’s $ 100 million Defence Line of Credit to Vietnam. The initial five boats were built in the Larsen & Toubro (L&T) Shipyard in India and the other seven in Hong Ha Shipyard. Senior civil and military officials of India and Vietnam were present during the handing over ceremony.

Use of Offset Policy

Offset is an important mechanism available to the domestic industry to enhance export capability. The Offset Policy may be reviewed and aligned towards final integration of weapons/systems in India and promoting export of such systems from India. 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.

The jump in exports to the US could possibly be due to the MoD pressing upon the US companies to make up the chronic shortfall in fulfilling their annual offset targets for previously imported equipment. Revenue earned by the Indian companies would diminish once these offset contracts are completed.

Issue No Objection Certificate

Presently export of defence equipment and weapons is regulated by two Departments. For items contained in the SCOMET list of Foreign Trade Policy of DGFT, export licences are granted by DGFT based on the Inter-Ministerial Working Group set up in DGFT. Ministry of Defence is one of the members in the Inter-Ministerial Working Group. For military stores, No Objection Certificate (NOC) is issued by the Department of Defence Production. The procedure for issuing the NOC in case of military stores has not been put in the public domain due to non-availability of list of military stores.

That requires a cohesive approach, said an industry veteran. Such compliance is necessary but it needs to be brought under the umbrella, he added. It takes time. With further push, India might achieve its objective towards defence export.  

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First published on: 09-11-2022 at 18:43 IST