Defence exports have grown by 334% in 5 years

Context:

The Defence Minister said that with collaborative efforts of entities from all over the world, the defence exports have grown by 334% in the last five years and India now is exporting to more than 75 countries.

Relevance:

GS-III: Indian Economy (Foreign Trade), GS-III: Science and Technology (Indigenization of technology & development of new technology)

Dimensions of the Article:

1. India’s Defence Exports
2. ‘Make in India’ initiative
3. Defence Production and Export Promotion Policy 2020 (DPEPP 2020)
4. More about the Change in Defence Exports and Imports in India

India’s Defence Exports

• According to a report released by Stockholm International Peace Research Institute (SIPRI) for the period between 2009-13 and 2014-18, Indian defence imports fell even as exports increased. This is good for a nation that has had the record of being one of the biggest importers of Defence equipment.
• As per the data published by the Stockholm International Peace Research Institute, or SIPRI, in March 2020, India is ranked 23rd in the list of major arms exporters for 2015-2019 and 19th for 2019.
• The Ministry of Defence’s annual report 2018-19 records that the defence exports were worth Rs 10,745 crore, a growth of more than 100% from 2017-18 (Rs 4,682 crore) and over 700 % since 2016-17 (Rs 1,521 crore). India’s share of global arms exports is only 0.17%.
• The current government has been laying emphasis on defence manufacturing in India to build up the country’s manufacturing base, ensure jobs for its youth and to bring down India’s arms import bill.
• India’s target was to export 5 billion USD worth of military hardware by 2025.

Factors responsible for this shift

1. ‘Make in India’ initiative, as part of which a number of components from Indian private and public sector enterprises have been prioritised by the government.
2. Extraneous factors in the form of delays in supplying equipment by vendors and the outright cancellation of contracts by the Indian government or at least a diminution of existing contracts.

‘Make in India’ initiative

Under the Make in India initiative, the Defence Procurement Procedure (DPP) lays out the terms, regulations and requirements for defence acquisitions as well as the measures necessary for building India’s defence industry.

• A new procurement category called ‘Buy Indian Indigenously Designed, Developed and Manufactured’ (IDDM) has been created in DPP of 2016
• The ‘Make’ procedure has undergone simplification “earmarking projects not exceeding ten crores” that are government funded and Rs. 3 crore for Micro, Small and Medium Enterprises (MSMEs)
• The DPP has provisions that make private industry production agencies and partners for technology transfers.
• Small and Medium Enterprises (SMEs) share in Indian Defence market was 17.5% in 2016, now 54%.

Defence Production and Export Promotion Policy 2020 (DPEPP 2020)

The DPEPP 2020 is envisaged as overarching guiding document of MoD to provide a focused, structured and significant thrust to defence production capabilities of the country for self-reliance and exports.

Regarding Domestic Production and Defence Exports

• The share of domestic procurement in overall defence procurement is about 60% now, and in order to enhance procurement from domestic industry, it is incumbent that procurement is doubled to RS. 1.4 Lakh crores by 2025 – according to DPEPP 2020’s aims.
• The policy says that Defence Attachés have been mandated and are supported to promote export of indigenous defence equipment abroad, with the efforts in this direction supplemented by selected Defence Public Sector Undertakings (DPSU).
• Subject to strategic considerations, domestically manufactured defence products will also be promoted through Government to Government agreements and Lines of Credit/Funding.
• In addition, with the aim to move away from licensed production to design, develop and produce indigenously and own the design rights and Intellectual Property (IP) of the systems projected in Long Term Integrated Perspective Plan (LTIPP) of the Services a Technology Assessment Cell (TAC) would be created.

More about the Change in Defence Exports and Imports in India

Public sector driven

Among arms producers, India has four companies among the top 100 biggest arms producers of the world. The largest Indian arms producers are:

1. Indian ordnance factories (37th rank)
2. Hindustan Aeronautics Limited (HAL) (38th)
3. Bharat Electronics Limited (BEL)
4. Bharat Dynamics Limited (BDL)

All four of these companies are public sector enterprises and account for the bulk of the domestic armament demand.

Explaining falling imports

Growing indigenization is not the sole reason for falling imports. Its is also because of the cancellation of some big-ticket items

1. India cancelled the India-Russia joint venture for the development of the advanced Su-57 stealth Fifth Generation Fighter Aircraft (FGFA) in 2018 due to delays and not having the actual “5th gen” capabilities
2. In 2015, we also reduced the size of the original acquisition of 126 Rafale Medium Multi-Role Combat Aircraft (MMRCA) from Dassault to 36 aircraft
3. Delays in the supplies of T-90 battle tanks, and Su-30 combat aircraft from Russia and submarines from France, in 2009-13 and 2014-18, also depressed imports.

SMEs not the favorites

SMEs still face stunted growth because India’s defence industrial model is at odds with global trends in that it tends to create disincentives for the private sector.

• Governments, including the incumbent, have tended to privilege Defence Public Sector Units (DPSUs) over the private sector, despite ‘Make in India’.
• This model is highly skewed, undermining the growth of private players and diminishes the strength of research and development.

Export trends

The trends look positive on the export front. Between 2012 and 2019, Indian defence exports, both Public and private, have seen a surge

The sharp rise in defence export products can be attributed to the measures introduced by Government

• In 2014, the government delisted or removed several products that were restricted from exports.
• It dispensed with the erstwhile No Objection Certificate (NOC) under the DPP restricting exports of aerospace products, several dual-use items and did away with two-thirds of all products under these heads.
• Small naval crafts account for the bulk of India’s major defence exports. However, export of ammunition and arms remain low.

Speaking of volume

• As a percentage of total Indian trade, defence-related exports for the fiscal years 2017-18 and 2018-19 were 0.8 and 0.73%, respectively.
• Thus, from a volume and value standpoint, Indian defence exports, while showing a promising upward trend, still remain uncompetitive globally. 

-Source: The Hindu