Export is a matter of economical survival for the defence industry, as it has very few end-users and it cannot be sustained merely on domestic requirements, hence it is imperative that it looks outward for wider markets…

The defence sector being a highly capital intensive sector, vast and costly defence production base once established (especially by the private sector), cannot sustain merely on domestic requirements, but needs to look outwards for wider markets, which besides making it more viable financially, would also incentivize our industry to grow further quantitatively, technologically and qualitatively by way of competing in world market.

India has the dubious distinction of being the biggest importer of military equipment as on date as over 60-70 % of its annual requirement still comes from foreign suppliers, despite of fairly large industrial base. Defence Production is peculiar in the sense that it has very few end-users, and no business can be sustained without Exports. Thus, export is a matter of economical survival for the defence industry.

On the other hand at present, India ranks 28th in the arms exporters list based on the volume of arms transferred. Further, in the past, India's defence exports have ranged between 1.5-2.4 percent of the total production, with an import: export ratio of 194:1, as compared to 1.3:1 in the case of Israel, 8.8:1 in the case of South Korea and 19.7:1 in the case of Singapore. The average share of Indian arms exports in the total world's arms exports pie stands to a measly 0.8 percent.

Export Potential

A vibrant domestic defence manufacturing sector will build strategic domestic depth in key sectors and also allow the economy to tap into export potential in the defence sector. This would be further beneficial not only in terms of improving export balance, but also further accentuating the job creation potential of the sector. The details of the defence equipment exported to various countries by Defence PSUs, Ordinance Factory Board (OFB) and Private Sector Companies (based on the NOCs issued) are as shown in the Figures.

Way Forward

One of the most important pre-requisite for any enterprise aiming for an Export market is to become globally competitive, have technical capability & capacity to produce. It requires following steps:

Industries to develop capability and capacity

• The Indian defence industry needs to invest in industrial and technological capabilities with increased capacity.
• The Govt needs to address the impediments for defence exports and incentivize the private industries.
• Public sector needs to be competitive rather than being nominated.
• Encourage and give incentive for the collaboration between the Public & Private sector companies for defence exports based on a PPP model.
• Most of the infrastructure & facilities are under Govt domain which needs to be shared/made available to private players as export can take place only for tested and proven equipment.

Marketing the product

The Govt at the higher level needs to interact with potential countries to whom we can export and keep them engaged till the end. Best examples are USA and France, who are making all efforts to establish a military and political partnership with India to export their defence products. Business is the key agenda with the US being the sixth largest investor in India, targeting a five-fold increase to 500 billion dollars in two-way trade by 2025 and accordingly they have developed several instruments like DTTI, given assurance to participate in Make in India, and more importantly their heads of state and MoD representatives are regularly making visits to promote their defence deals. Similarly, France to sell their Rafael aircraft have made number of visits and are keeping India engaged on regular basis.

We need to tap the potential countries for export and the countries whom we are already exporting defence products (as shown below) must be kept engaged. The quantity and revenue may be very meager but subsequently as our export potential grows, since we already have good relations with these countries, they may be our potential importers. With the successful development of various versions of Brahmos missiles and with MTCR sanction, India has the badge-pin it needs to process interest from countries like UAE, Chile and South Africa, but especially wrap up a contract with Vietnam as the likely first international customer of the BrahMos.

Export of Defence Equipment by India

Govt needs to ease the process

The impediments for defence exports are multiple, lack of technology and uncompetitive pricing; the existence of a negative list of countries; required and stipulation of 'End Use Certificate', lack of thrust on marketing, large number of clearances, skewed national export policies lacking incentives, deficient products, poor marketing and moralities of nonalignment etc. The Govt needs to reduce these impediments and support the private industries not only in terms of incentive but by funding their R&D initiative.

Defence Diplomacy

Present Government's foreign policy is currently focused on improving relations & defence tie up with neighboring countries in South Asia, engaging the extended neighborhood in Southeast Asia and the major global powers. In pursuit of this, as of July 2016, the Indian Prime Minister has made 51 foreign trips on six continents, visiting 42 countries including the visits to USA to attend UN general assembly, to Asian countries, following his neighborhood first and act east policies. Recently in Jul 16, he visited Mozambique, South Africa, Tanzania and Kenya with the aim to shoring up economic ties; firm up maritime security and counter balance China's growing influence in the resource-rich continent. These visits reflects India's desire to further strengthen and reinvigorate bilateral ties  and provide opportunities to build on close contacts at the highest political level and enhance mutual cooperation and understanding on major issues of common interests and explore ways to export.

In the backdrop of these visits, it is apparent that military diplomacy has found new strong foothold in the new Government's reign. It is a welcome change and the Government seems keen to strengthen defence relations with friendly foreign countries coupled with being more pro-active in East and Southeast Asia. In the past, due to the lack of negotiating power, the defence visits has been limited to only certain countries like Russia, US and to some extent Europe with these being the major defence exporting countries.

Earlier India had ignored the technology available with the neighboring region like Japan, South Korea etc who have also successfully developed state-of-the-art defence technologies and are willing to provide the requisite technology and are ready for joint development in defence which has been missing in the deals concluded with US and European countries. As India strives to develop its own broader industrial capabilities, the defence partnerships with friendly international defence players could provide an avenue for capability and knowledge transfers. This would also enable countries to grow not only their defence industry base but also benefit SMEs, supply chains and local distribution networks.

Conclusion

In order to meet the objective, it is imperative to not only provide incentives for exports but also simplify policy and make it synergistic, besides making interpretation and implementation more consistent. Towards this end, the new government has taken a number of laudable important decisions and initiatives. To start with the Indian government has recently taken some actions to fuel the growth in exports and most importantly the Govt has projected very strong image of India to the world through “Make in India” and is working towards a strong Defence Diplomacy.

In recent years bilateral and defence relations by our Govt with number of countries have gathered momentum through high level visits and regular ministerial and official level contacts. These reciprocal visits by the head of states will not only build trust but also showcase the capabilities and potentials of the country and enable each other to share their capabilities and defence manufacturing. Such diplomacy will certainly encourage the Indian private firms and SMEs to enter the global defence supply chain on a large scale who have been losing out on major international orders for parts and spares as foreign buyers are not comfortable to such cumbersome clearances and hence the Govt will have to do much more to ensure implementation through mechanisms, transparency and strict monitoring to overcome time delays and red tape-ism.

All major defence firms source components from across the world, finally integrating the systems at a central facility. A small part exported by an Indian industry may go to one country to tier one which subsequently routed to the OEM in other country. Export can be further explored by the reciprocal visits by the head of states.