India is now emerging as a manufacturing hub for defence production and these transformation steps are taken because of the government defence policy scheme introduced in 2014. The government issued 270 defence licenses to boost manufacturing in defence and the number has increased by 460 in the last five years. India not only made substantial progress towards self-reliance in the defence sector but also became a major player in the field of defence exports in 2020.
The Indian government introduced a new draft policy that sets a US$ 25 billion defence production target, including making US$ 5 billion from exports by 2025. Defence exports in the nation witnessed strong growth in the last two years. India targets to export military hardware worth US$ 5 billion in the next five years. India’s defence import value stood at US$ 463 million in FY20 and is expected to reach US$ 469.5 million in FY21. India may be a big importer of defence equipment but has been making steady progress in exports of such products to several countries including those who are major players in the global export market like the U.S, Australia, Finland, France, Germany, Israel, South Africa and Sweden, according to the draft policy of 2020.
The ministry of defence will set up a technology assessment cell to assess the industry’s ability to design, develop, produce and re-engineer assembly lines to manufacture major systems such as armoured vehicles, submarines, fighter aircraft helicopters and radars. At the moment, India is manufacturing everything from artillery gun aircraft carriers to submarines. India is manufacturing Tejas by HAL and INS Vikrant, the first indigenous aircraft carrier constructed by Cochin shipyard which is expected to be commissioned in 2022. The government had approved the export of an indigenously developed surface-to-air Akash (missile) system and set up a panel to ensure faster approvals for acquisition proposals by various countries.
India now developed many crucial weapons indigenously and are increasing its quality and benchmark to international standards to export this system to other countries. Countries like Armenia, Vietnam, Indonesia, Bangladesh and Myanmar are also interested in India’s defence supplies because of their low cost as compared to other countries. Recently, India inked a US$ 40 million defence deal with Armenia to supply 4 radar systems. Eventually, the Philippines could emerge as the first export destination for the BrahMos cruise missiles. In March 2021, India signed a key pact with the Philippines for the sale of defence material and equipment which are likely to include BrahMos cruise missiles.
The Modi government decided to present itself as an alternative to China in providing quality defence items to ASEAN countries and along with nations in the Indian Ocean region. New Delhi has set out to join the bandwagon of countries that seek to expand their reach and influence by offering arms and military equipment on sale to smaller nations that depend on imports to meet their needs. This will not only help New Delhi to check China’s policy of encircling India but also bolster its image as a security partner for friendly countries. As part of its intention to emerge as the preferred military partner for the Indian Ocean Region and Africa, India has come out with a list of 152 defence items that are available to friendly nations. This includes the Tejas fighter aircraft, Dhruv and Rudra choppers besides the light combat helicopter, BrahMos supersonic cruise missiles and the Akash air defence systems.
While India has increased the range and is working on enhancing it further, the export variant will have a 290 kilometres range. Current developments in Indian military bases India is engaged in developing a military base on the Agalega island in Mauritius and a naval base at Seychelles’ Assumption island to boost its maritime presence. The new base that is coming up in Mauritius will be essential for facilitating both air and surface maritime patrols in the southwest Indian Ocean and is an intelligence outpost.
Emerging Private Sector
The share of the private sector has been steadily increasing with the participation of more players for India. To reach closer to the proposed 2025 targets, a radical overhaul of the current defence production regime is required. While a bulk of defence production is still attributable to the twin government pillars of defence public sector undertakings and ordnance factories, the emerging private sector will have a significant role to play. If India aspires to ramp up its capabilities several private sector players like Bharat Forge and Sundram Fasteners are keen on tapping the emerging opportunities in defence. Sundram Fasteners has set up a subsidiary to focus on the aerospace and defence segments. It has orders for forged cast and machined parts for all-terrain and land systems vehicles for defence in the aerospace segment.
The Chennai headquartered MRF has emerged as a key player in the supply of tires to Indian Air Force. Another key player, the Kalyani strategic systems and Bharat forge of the Pune based Kalyani group are producing a range of defence equipment including artillery systems, ammunition, missiles and air defence solutions along with small arms. If India wants to realize its ambition of being a significant player in the global defence scene it would require a massive modernization of its public defence set up along with an infusion of capital and technological expertise from private companies.
The relaxation in FDI norms does open the door wider for more strategic alliances between foreign defence firms and Indian private companies while the larger trend seems to be towards privatisation and foreign investment. However, the public sector remains the backbone of defence production in India and therefore needs proactive reforms. The defence expo is a good step taken by the government which provides a platform to buyers and sellers. Bipin Rawat, chief of defence staff general called for a revamping of India’s defence public sector undertakings with a focus on improving their work culture and quality control. With no doubt, the two major companies the DRDO and HAL have played a key role behind India’s defence export.
Reduction in Indian Arms Import
In a report published by a Swedish think tank, Stockholm International Peace Research Institute said India’s arms imports saw a 33% drop between FY 2011-15 and FY 2016-20. It mentions that both Russia and China witnessed a fall in their exports. Russia substantially increased its arms transfers to China, Algeria and Egypt between FY 2011-15 and FY 2016-20 but this did not offset the large drop in its arms exports to India. The report said France increased its exports of major arms by 44% and accounted for 8.2% of global arms exports in FY 2016-20. India, Egypt and Qatar together received 59% of the French exports. The report also says that the drop in Indian arms imports seems to have mainly been on account of its complex procurement processes combined with an attempt to reduce its dependence on Russian arms. Russia witnessed a 53% fall in its arms exports to India as Delhi’s imports from Paris increased and Moscow increased its exports to Beijing.
The Modi government is taking steps to reduce imports with a focus on manufacturing in India due to liberal policies adopted since 2014. There has been a substantial increase in India’s defence exports, it has jumped by 700 in the last two years. In a written reply to the upper house of parliament, the ministry of defence said 304 contracts were signed for the modernisation of armed forces. In the previous five fiscal years and the current financial year up to January 2021, out of the total 190 contracts were signed with Indian vendors for capital procurement of defence equipment for armed forces.
Defence minister Rajnath Singh released a new version of defence research and development organization procurement manual 2020. There are plans to establish new infrastructure including a defence park in Kerala to manufacture defence equipment for the armed forces. The project is aimed at promoting micro small and medium enterprises and boosting the Make in India initiative to increase defence manufacturing in India and make the country a reliable weapon supplier to friendly countries.
As the Indian government has come out with a blueprint for self-reliance in defence procurement, the Indian private sector is seeking a level playing field with some actionable measures for its active participation in fulfilling the twin objectives of self-reliance and export. The private sector players have lauded the government’s draft defence production and export promotion policy 2020 as a well-structured apex level policy document that is in line with the self-reliance goal. The draft document has clearly defined the actual goals and high-level strategies for indigenous R&D, production and exports in the defence sector.
The Indian government allowed the following FDI limits in September 2020. For new licensee FDI allowed up to 74% through automatic route and FDI beyond 74% would need to be permitted under the government route, for existing licensee infusion of new foreign investments up to 49% can be added by making declarations of change and transfer within 30 days. The defence ministry estimates a potential contract worth US$ 57.2 billion for the domestic industry in the next five to seven years. Ministry of defence targets 70% indigenisation by 2027, creating huge prospects for industry players.