India has witnessed a significant increase in its defence exports, growing over six times from 2016 to 2021. However, its share in the global defence trade remains meager at approximately 0.2%. In contrast, according to the Stockholm International Peace Research Institute (SIPRI), India, along with Saudi Arabia, has emerged as the largest importer of arms, accounting for 11% of all global arms sales between 2017 and 2021.
The impediments faced by India in boosting its defence exports are as follows:
- Limited participation of the private sector: The majority of India’s defence exports are driven by public sector undertakings like Hindustan Aeronautics Limited (HAL) and Bharat Heavy Electricals Limited (BHEL). However, these entities often face challenges such as red tape, inefficiency, and politicization. Meanwhile, private players with sufficient resources have only peripheral involvement in defence manufacturing.
- Skewed allocation for defence research and development (R&D): India’s defence budget allocates less than 1% for research and development, resulting in a lack of effective design and development capabilities, especially in critical technologies. Additionally, there is a deficiency in establishing strong links between the industry, academia, and defence.
- Reputational setbacks: The Indian defence industry has suffered reputational setbacks in the past. For instance, in 2005, Nepal accused India of exporting poor-quality INSAS
rifles. Furthermore, in 2015, Ecuador terminated its contract with HAL for Dhruv Advanced Light Helicopters (ALHs) due to several crashes within a short period.
- Limited range of indigenously designed and developed equipment: India has few major equipment and platforms that are indigenously designed, developed, manufactured, and proven, thereby restricting the offerings for export.
- Low productivity: Compared to major global defence manufacturers like the USA and Russia, India faces higher per unit production costs. Consequently, the end products are costlier and less attractive to foreign buyers.
To address these challenges, the government has taken several steps to boost India’s defence exports:
- Indigenisation support to Micro, Small, and Medium Enterprises (MSMEs): The government has issued a positive indigenisation list of 209 defence items that must be procured from domestic industries. Additionally, for the year 2022-23, approximately 68% of the capital outlay will be sourced from the domestic defence industry, with 25% solely dedicated to the private sector.
- Scheme for Promotion of Defence Exports: This scheme allows prospective exporters to obtain government certification for their products and gain access to the testing infrastructure of the Ministry of Defence for initial validation and subsequent field trials.
- Simplified defence industrial licensing: The Department of Defence Production (DDP) has been designated as the Licensing Authority for the export of various items. It serves as a single point of contact for exporting parts and components of Small Arms & Ammunition. The government has also introduced the Open General Export License (OGEL), which enables the industry to export specific items to designated destinations without requiring export authorization.
- Involvement of the Ministry of External Affairs (MEA): The MEA has facilitated Lines of Credit for foreign countries to import defence products. Additionally, defence attaches in Indian missions abroad have been empowered to promote and encourage defence exports.
Furthermore, the corporatization of the Ordnance Factory Board into seven defence Public Sector Undertakings (PSUs) is expected to enhance defence exports. To achieve the ambitious annual export target of approximately Rs 36,500 crores by 2025, India requires a pragmatic defence export strategy and a dedicated defence export promotion and facilitation agency to monitor progress effectively.