“Make in India” target for the Defence Sector is not just self-reliance but exports as well

The upcoming Defence Expo 2020 at Lucknow is a great event for India’s defence sector to showcase its achievements under the “Make in India” campaign. Being a biennial event, this is perhaps the third defence expo since the launch of the campaign. Pre 2014, the Indian defence industry can safely be termed as moribund. Strong focus under the “Make in India” program has elevated the defence industry to a nascent stage today. Past five years has seen India importing state of art defence systems. Side by side, we have also seen a number of indigenous defence systems under production through foreign collaboration, off-set deals, tech transfer as well as local innovation. Although all these efforts are still be termed as “experimental” there is no denying the fact that the Indian defence industry has catapulted itself to the world centre stage.

Indian Defence Industry so far was dominated by two groupings viz the Ordinance Factory Board (OFB) and the Defence Public Sector Units (DPSU). They are now joined by private sector enterprises hitherto involved in heavy engineering projects. OFB is a colonial-era player with 41 modern factories, 9 learning centres and a huge infrastructure spread across India. It is generally regarded as a conventional armament manufacturer and has to a certain extent dominated the successive Defence Expos with a variety of products as compared to its DPSU cousins that are involved in defence vehicles and mobile armament systems including air and sea-based defence systems. Within the private sector, the initial euphoria appears to have been slowed down – currently, L&T heavy engineering is seen to march ahead with high tech import substitution defence systems.

“Make in India” target for the Defence Sector is not just self-reliance but exports as well. Of the total defence budget outlay of US$ 60.9 billion in 2019 India is expected to spend at least 45% on imports. On the other hand, India’s defence-related exports in 2018-19 by the military-industrial players was US$ 1.47 billion, a jump of 122 per cent over 2017-18 export figures. Compare this with the world’s top ten exporters. As per SIPRI Trend Indicator Values, in 2018 the top ten players led by USA and Russia exported US$ 2,082.23 billion worth armaments. If India maintains its 2017-19 arms export momentum and performance, India has already breached 6th rank and is perhaps well poised to move ahead of China in 2019-20 and rub shoulders with the likes of France and Germany.

The key success factor for the spectacular performance of India’s defence sector has more to do with the introduction and implementation of structural changes on the sidelines of “Make in India” campaign rather than the new investment and latest technology absorption by the sector. Dynamic changes in arms exports policies within the ambit of Foreign Trade Policy (FTP) as well as UN conventions for enabling arms exports, inviting India’s private sector in defence production and permitting them to take part in defence import off-set deals, export incentives, enabling Technology Transfer from DRDO to industry, increasing the FDI cap and finally management independence to OFB-DPSU units has played a Steller role in defence export surge.

Increase in global conflicts and the need for peace to promote and sustain human development is driving the global arms industry. Countries that affirm their commitment to global peace are the world’s largest exporters. Every country has realised the need for a “strategic deterrent” and the need for weapons to prevent conflicts. To cater to this pragmatic world order, there is no reason why India should be left behind. India has set an arms export target of US$ 5 billion for 2025 while the Industry output target for 2026 set by the Defence Minister Mr Rajnath Singh is whopping US$ 26 billion. A number on low-conflict theatres in Africa, South America and the Far East are new, prospective markets for India where conventional products of OFB could have a great demand as compared to high-cost air and sea systems manufactured by DPSUs and private sector giants. These geographies are currently being served by China with its superior marketing power, financial deal-making and State support.

On quality and tech front, India should have no worries. However, the Indian Defence Industry needs to set its Marketing initiatives right by improving its geographical reach and response time, deal-making and deal closing abilities. Exports statistics reveal that OFB-DPSU combine contributed mere 8 per cent to India’s total defence exports in 2018-19. Such an average performance can be attributed to poor marketing initiatives and to a certain extent to the cap on production for export. OFB-DPSU need a robust marketing network including fee-based sales intermediaries rather than banking on government-2-government pacts and protocols. Their response time too needs to improve. A number of prospective importers with consular operations in Delhi complain of a response time stretching over two years, in-significant after sales and spares supply and disposal management. On the production and supply front, the government needs to re-consider the 10 per cent cap on production for exports after meeting local demand to enable OFB and DPSUs to meet the contracted timelines. The Indian defence Military-Industry players have to take a gamble on whether their capacities will drive exports or the exports will drive capacities under the “make in India” campaign.

The upcoming biennial Defence Expo is a great event to showcase India’s Defence production capabilities. One hopes to see a good amount of deal-making on the sidelines!