India’s Defence Exports

Posted 21 May 2024

5 min read

Why in the news?

India delivered the first batch of BrahMos to the Philippines.

Reasons for the rise in India’s Defence exports

Financial push:
- Enhanced Foreign Direct Investment (FDI) limit:
  - Up to 74% through the Automatic Route for companies seeking new defence industrial licenses.
  - Up to 100% through the government route wherever it is likely to result in access to modern technology.
- Venture Capital funds: Agreement to facilitate infusion of Venture Capital into the defence ecosystem through the iDEX Innovators Hub (iIH).
- Financing from Exim Bank for defence exports
Encouraging Private Sector Participation: Government has earmarked 25% of the defence research budget for the private sector in 2022-23.
Initiatives to promote indigenous innovation: E.g.,
- Innovation for Defence Excellence (iDEX) was launched to achieve self-reliance and foster innovation and technology development in defence sector.
- Mission Raksha Gyan Shakti to inculcate and strengthen Intellectual Properties into defence manufacturing.
Reduced dependence on foreign equipment manufacturer: E.g., 5^th Positive Indigenisation List was announced in October 2023, listing Defence Items to be procured from indigenous sources.
Defence diplomacy: It includes measures like-
- Line of Credit (e.g. to African countries for purchase of weaponry),
- Defence Offset Policy (to leverage capital acquisitions to develop Indian defence industry)
- Marketing products to potential buyers from overseas, etc.
Infrastructure: Defence Industrial Corridors established in Uttar Pradesh and Tamil Nadu have attracted large scale investments.

Benefits of Rising Defence Exports

Defence Export as a Strategic Tool:
- Increases diplomatic leverage and scope of strategic partnership with partner nations.
  - Moreover, technological dependencies (related to maintenance, repair, spares, components, future upgrades) influence geopolitical stance of nations
- Compatibility between exporting and receiving nations enhances military interoperability through the conduct of military exercises and joint operations.
- Integration with defence value chain by exporting to major countries.
  - It also insulates country from supply line disruptions during conflicts such as Russia, Ukraine conflict, Israel-Hamas war etc.
High Value Nature of defence exports: It adds to economic strength through earnings of forex reserves, creation of high-skilled job opportunities, new market opportunities for domestic defence manufacturing etc.
Other benefits:
- Enhances R&D base in defence through involvement of private players.
- Strengthens national security
- Self-reliance through Indigenization of Defence.

Challenges faced in India’s defence export

Inadequate R&D spending: India is spending is less than 1% in R&D as a part of total defence budget expenditure.
- China and USA spend around 20% and 12% respectively.
Limited budget: The defense allocation for FY 24-25 is just about 1.9% of the GDP.
Credibility issues: Indian defence products have less credibility than their counterparts (USA, France, Russia) because of their dependency on imports for advanced weapons.
- As per Stockholm International Peace Research Institute, India has been the world’s highest arms importer from 2019 to 2023.
Inadequate capacity: Massive gap exists with respect to India’s manufacturing & export capacity as compared to dominant players.
- Even though India exports military hardware to 85 countries, its share in world export is minuscule.
- India remains outside the top 25 arms exporters in the world.
Over-reliance on DPSUs: It leads to supply monopolies and creates hurdles in integrating private sector into defence innovation and industrial ecosystem.
Other issues: Diplomatic issues and competition from other nations; Non-timely delivery of services due to lack of proper infrastructure; Lack of cohesion and coordination between the Indian Armed Forces, the DPSUs, private manufacturers, and the Ministry of Defence etc.

Way Forward

If India to become a dominant force in the global arms market meet its target of US$5 billion in export revenue, following measures can be taken:-

Use of Export revenue to enhance funding of DPSU R&D budgets or capital expenditure of the government.
Utilization of Present opportunities in the geopolitics and external factors such as weak and inconsistent performance of China’s arms export. (Myanmar's grounding of Chinese jets)
Establishment of a single point agency responsible for coordination between all stakeholders, executing plans, and meeting the targets for defence exports.
Quality Assurance and Standardization by adhering to international standards and obtaining certifications thereby enhancing global credibility of Indian defence products.
- MSME Sustainable (ZED) Certification schemes which strives to create an ecosystem of competitive, clean and quality manufacturing, could be leveraged.
Invest in international marketing and branding to change perceptions about the quality and reliability of its defence products.
Promote Public-Private Partnerships by greater involvement of the private sector through by offering incentives, facilitating technology transfer, and promoting joint ventures.
Securing export deals of high value weapons (e.g Pinaka, AKash, Dhruva). by offering of incentives through lines of credit, government-to-government route

Conclusion

Defence exports provide an opportunity to embellish India’s growing stature on the global table and improve its strategic leverage with partner nations.