For a country that has long had the unenvious distinction of being the largest global arms importer, the narrative of `growing – arms exports’ is in itself a paradigm shift. It is with pride that the Raksha Mantri (Defence Minister) recently announced the value of defence exports having reached Rs 21,083 Crores (US $ 2.3 billion approximately), during the Financial Year (FY) 2023-24. This is the highest value ever, for the country’s defence exports.[1] Although the overall figures are still modest, it is the trend that needs to be taken note of – to sustain and build upon!
This brief aims at recapitulating the recent achievements in the field of defence exports, identifying future challenges, and making recommendations to accelerate these endeavours, directed ultimately at achieving greater self-reliance and strategic heft.
Recent Trends in Defence Exports – Recapitulation
While the details of India’s defence exports are available in the public domain, salient statistics are recapitulated below for ready reference.
As would be noted, the highest defence exports have so far been achieved in the years 2023- 24, with a YOY increase of 32.5%. Looking at the trends, India’s total defence exports during the period 2014- 15 to 2023-24 amount to Rs 88,319 Crores as compared to Rs 4312 Crores over the previous decade. This is 21 times increase between two successive decades,[3] suggesting an accelerated positive trend. The resolve to further build on this trend is evident from the goal of defence production now set at Rs 300,000 Crores and defence exports pitched at Rs 50,000 Crores annually, by 2028-29.[4]
These results have been achieved through the combined efforts of the Public and Private sector industries, contributing 40% and 60% respectively. In recent years, the Indian defence export basket has progressively evolved from components/ spares to complete systems, platforms and munitions. The exports now include: Artillery guns and ammunition, Pinaka (MBRL), Brahmos Cruise missiles, Akash SAM, Off-Shore Patrol Vessels (OPVs), submarines (refurbished), Torpedoes, ALH helicopters, Dornier aircraft, battlefield surveillance and Coastal surveillance radars, Personal Protective gear, Parachutes, Night vision Devices, Mine Protected Vehicles, Military Vehicles……. and more. About 50 companies are exporting to 84 countries, as of now.
What has Made this Possible?
The recent upswing in defence exports is a cumulative of several initiatives launched by the government towards achieving self-reliance, with added emphasis on the defence sector.
The overall sentiment emanates from the initiatives promoting `Atmanirbharta,’ through the growth of indigenous industry, including MSMEs. This is supported by policies and dedicated allocations made in successive defence budgets towards R&D in the private sector, and preferential procurement of domestically designed and developed products with higher indigenous content. Measures have also been instituted to expose Indian innovators and entrepreneurs to global investors and industry. All this has led to the rapid growth of defence innovation and manufacturing ecosystem and it's getting plugged into the global supply chains.
Concurrently, with the setting up of organisations/ schemes like `The Export Promotion Council;’`Scheme for Promotion of Defence Exports (SPDE),' to liberalise licensing and export clearances (within global arms control norms), extending financial support for attending Def Expos, marketing, and publicity; instituting `Technology Upgradation Fund Scheme (TUFS)’ to modernise and upgrade defence manufacturing industries; there is an added incentive (and affordability) of venturing into the defence sector.
Also, the involvement of Indian Missions abroad including the Defence Attaches in furthering defence exports; promotion activities conducted on the sidelines of Def Expos and Aero-India events; and the provisions of `offsets' in the successive Defence Acquisition Procedure (DAP) manuals have contributed towards the expansion of the market base. The off-set discharge policy for foreign vendors, awarded contracts of Rs 2000 Crores (or more) mandates `Direct purchase of or executing export orders for eligible products manufactured by or services provided by Indian enterprise or investments in Indian defence manufacturing and ToT.’[5] Despite its many challenges (which need to be addressed), this has had its positives.
Analysis
A distinct silver lining in the field of defence capability development is the beginning and progressive growth of India's defence exports.
The paradox of the current state of indigenisation, self-reliance and defence exports is, however, starkly evident from two, nearly back-to-back events in March 2024. On March 12, 2024, at Pokhran (Rajasthan), the Indian Armed Forces conducted Exercise Bharat-Shakti, showcasing the prowess and firepower of indigenously manufactured weapons. An impressive array of defence systems was on display.[6]
Near simultaneously (March 11, 2024), the yearly SIPRI Report on `Trends in International Arms Transfers,’ for the Period 2019-2023, was released. In the report, yet again, India maintained the unenvious distinction of being the largest global arms importer, acquiring 9.8% of all defence sales, an increase of 4.7% in imports over the period 2014-2018.[7]
In the other part of the same report, India did not figure in the list of top 25 arms exporters, which includes countries like Brazil and Iran, with 0.2% of the global share. To be objective, however, these statistics are period-specific and fluctuating. India did appear as the 23rd largest exporter of major arms, with a 0.2% share, during the Period 2017- 2021; having exported to Myanmar (pre-coup of Feb 2021) (50%); Sri Lanka (25%); and Armenia (11%). The overall deduction is that while we have commenced the journey, there is a long way to go.
In the larger analysis, growing defence exports are an indicator of the emergence of a robust defence industrial base. This in turn leads to two distinct, but related benefits.
One, it enables Indigenous design, development and production of platforms and systems, hitherto being imported, freeing India of the stigma of being the largest importer.
Two, it helps the growth of the entire industrial ecosystem of innovation, R&D, development, and manufacturing, resulting in the emergence of entrepreneurs and MSMEs, job creation, and economic growth.
These two are interrelated but different verticals. The increased exports do not result directly in reduced imports. At the national level, while promoting defence exports, distinct emphasis needs to be laid on developing capability through indigenisation and reducing imports. The industrial ecosystem and overall exports will grow alongside, automatically.
The defence exports fall broadly under four different categories. The first category constitutes complete platforms/ systems, developed, and manufactured primarily for own country use. Details of some of the equipment in this category have been mentioned above. Indigenous acquisition of these results in a direct reduction of imports. Their exports lead to achieving economies of scale, besides fostering strategic bonds with select countries for at least three to four decades, the service life of these systems. As of date, such systems are primarily manufactured either by DPSUs or select private arms majors in India. This is because of being capital and technology-intensive, and the global markets being hugely contested by established players.
In the journey to develop major platforms, an entire system of tier 2/3/4 vendors gets created, of micro, small, and medium-scale enterprises (MSMEs). Besides supporting the design and manufacture of various major platforms, these industries also become affordable sources of sub-systems, components, and spares for various global arms manufacturers.
Some of these smaller industries have also carved a place for themselves in the field of less capital-intensive defence products like individual protective gear, weapon sights, night vision devices, simulators, micro drones, camouflage, deception equipment etc. With the promotion policies of the government for the MSMEs, the global visibility and reach of these industries have improved. They are now able to plug into the supply chains of major OEMs in the US and NATO countries. These constitute the second category of defence exports.
The third category is the defence exports from the joint venture (JVs) created by the foreign OEMs in India and the offset partners identified by them to enable the discharge of contractual offset obligations. Some of the defence exports to our credit emanate from such industries and as part of this obligation. The JVs created in India by the likes of Airbus, BAE Systems, Boeing, Dassault, Israel Aerospace Industries (IAI), Lockheed Martin, Saab, Safran, Military Industrial Consortium NPO Machinostroyeania (Russia) have brought in investments, technology, high-end manufacturing skills, access to testing facilities and their established markets. The access to their IPRs however remains restricted, constraining stand-alone exports and indigenous spiral development.
The fourth, yet emerging category, is of budding innovators in the field of niche technologies, eg., Satellites, launch vehicles, swarm drones, anti-drone systems, AI, autonomous vehicles, underwater domain awareness... These innovators are creating an innovation bridge with advanced countries, for accelerated development of technology-enabled systems. They are entering a `less contested’ segment of defence exports with immense potential to get the country maximum value in capability development and economic growth.
In the scheme of promoting Indian defence exports, each of these categories is equally important but requires a different approach towards promotion. It is imperative to remain cognisant that the sales/ exports related to offset discharge are temporary. Endeavour must be made for the integration of offset partners into larger supply chains. There is also a requirement for greater impetus to be accorded to indigenise larger systems/platforms to directly enhance exports and reduce imports. The IPRs for these must rest within the country. The (yet) inadequately explored provisions of Co-development with strategic partners also need to be leveraged for long-term benefits.
Recommendations
The following recommendations are made to enhance defence exports:
Increased emphasis on promoting R&D and innovation, through technology development initiatives; and added emphasis on indigenous design, development, and production, under provisions of the Defence Acquisition Procedure (DAP-2020).
A clearer understanding of the nuances and the (long) timelines for the development/co-development of technology, its acquisition through ToT/ offsets and the process of its absorption. This will enable prioritising appropriate projects for indigenous development, with realistic timelines.
The continued preference for indigenous acquisitions, including incentives for the promotion of MSMEs, without eroding the level of current operational preparedness.
Progressive efforts to restrict acquiring IPRs from foreign OEMs only to sub-systems and components level, with platform level IPRs being indigenised. This will enable unhindered exports and subsequent spiral development.
Encourage co-development, co-production, and manufacturing in India, even with lower Indigenous content initially, to reap the benefits of attracting investments, skilling, high-end manufacturing, growth of ancillaries and entry into global supply chains (The provisions of co-development contained at Para 127 of Chapter 2 of DAP 2020 (Pg 60) are yet to be explored adequately).
Evolve an institutionalised system of de-inducting `select’ in-service equipment, with adequate residual service life, to be refurbished and exported at affordable cost to developing countries in need. Products under this category would need careful identification.
Ensure timely achievement of targets laid down in the `Positive Indigenisation Lists.’
Refining the policy, system, and organisational structure for executing offsets discharge in India by foreign vendors and crediting these to OEMs. The problem being faced currently is more in execution, than the policy.
Create a robust `Export Planning and Control Organisation’ (as against the current system of these being cleared by a committee comprising of RM, EAM, and NSA[8]) to identify likely recipients, and their specific needs and to regulate production and exports. The trends and requirements emerging from ongoing conflicts must also be analysed by this organisation. The emphasis on exports should shift to high–tech high value than low-tech – low-value equipment.
Maintaining very high ethical standards of confidentiality of IPRs and technology sourced, and strict adherence to the norms of `Multilateral Export Control Regimes’ of which India is a signatory - the Wassenaar Arrangement (export of conventional arms and dual-use goods and technologies); Australia Group (related to Chemical weapons); and MTCR (export of missiles capable of delivering WMD).
Ensuring high quality of products exported and providing reliable sustenance support, including setting up MRO facilities, where required.
A concerted effort to seize the space (still available) in the field of application of emerging technologies for non-military and military use, in which the Indian innovators excel globally. This, in the long run, will enable capability development and commercial monetisation.
India’s journey in defence exports has `well-begun.’ Securing a place in this highly competitive field requires persistent and focused effort, suggestions for which have been made in this analysis.
(The paper is the author’s individual scholastic articulation. The author certifies that the article/paper is original in content, unpublished and it has not been submitted for publication/web upload elsewhere, and that the facts and figures quoted are duly referenced, as needed, and are believed to be correct).(The paper does not necessarily represent the organisational stance... More >>
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