Hitting the mark on defence exports

Source: The post is based on an article “Hitting the mark on defence exports” published in the Business Standard on 28^th July 2022.

Syllabus: GS 3 Effects of Liberalization on the Economy, Changes in Industrial Policy and their Effects on Industrial Growth.

Relevance: Defence Sector and Defence Export

News: Recently, the Naval Innovation and Indigenisation Organisation Seminar Swavlamban was organized in New Delhi. Prime Minister (PM) reiterated the government’s will to move out of India’s addiction to defence imports and turn it into an exporter of military equipment.

In 2020, the PM has set the five-year defence exports target of Rs 35,000 crore.

To fulfil the target, the MoD may launch 75 items in the fields of unmanned systems, robotics, intelligent surveillance and more to propel India. The government

Approximately half and one-fourth of India’s defence exports between 2017 and 2021, were to Myanmar and Sri Lanka, respectively.

During FY21, the US became India’s biggest customer in terms of defence export.

Other major regions to which Indian exports were headed were South-East Asia, West Asia and Africa.

Status of India’s defence export

The defence exports are hitting an all-time high of Rs 13,000 crore during FY21-22. Further, the share of the private sector accounts for 70% of the exports.

The items exported comprises advanced light helicopters, missiles, offshore patrol vessels, surveillance systems, personnel protective gear, and various types of radars.

What are the drivers of Indian defence exports?

First, the government has taken various steps like simplified industrial licensing, easing of export restrictions, and issuance of no-objection certificates (NOC).

Second, in the post-2014 period, a separate defence export strategy was prepared. It focussed on export promotion or facilitation and export regulation.

Third, the Ministry of External Affairs has supported the creation of lines of credit (LOC) for countries to import Indian defence products. In the Indian missions abroad, the defence attaches were established, authorised to encourage Indian exports.

Fourth, the Defence Production and Export Promotion Policy 2020 pushed for exports. It mandates public sector undertakings to derive at least 25% of their revenue from exports, including success fee by 2025.

Sixth, the Defence Expo and Aero India are organized to exhibit India’s defence production capacity.

Seventh, the Department of Defence Production focus on time-bound export clearances.

What are the factors retarding the growth of Indian defence exports?

There are various factors which have long hampered the indigenous manufacturing in India and may make it difficult to achieve the target of Rs 35,000 crore.

First set of issues: like absence of critical technologies, the long gestation period involved in creating a capital and technology-intensive production base, conducting business operations is difficult due to stringent labour laws and compliance burden, inadequate funding of defence research and development (R&D), and the lack of engineering and research skills.

Second set of issues: like poor designing capacity in core technologies, insufficient finance of R&D, and the incapability to produce critical subsystems and components.

Third set of issues: there is an adverse skill gap at present, due to weak industry-academia interface.

What should be done?

India should tap the right opportunities by smartly utilising our existing competitive advantages.

There are various prevailing cost advantages in various lines of indigenous defence production.

India can explore export opportunities in the African countries like Algeria, Morocco and Angola; and the West Asian countries like Saudi Arabia, the UAE and Qatar.

India should explore defence markets in the Indian Ocean Region and work upon the Neighbourhood First policy. This can be enabled through lines of credit to India’s neighbours like Maldives, Bangladesh and Myanmar

Basket of items to start from: Initially focus on exports of items such as the BrahMos cruise missile, Pinaka multi-barrel rocket launcher, the advanced light helicopter Dhruv and the Akash air-defence system. Further, India should move towards providing end-to-end defence solutions in the long-run.