Defence Exports - Rau's IAS

India’s defence exports touched a record Rs 13,000 crore in the 2021-2022 fiscal year. Private sector is playing a key role in boosting exports.

Export Target – $5 billion by 2025

In 2020, government had set a target of Rs 35,000 crore ($ 5 billion) export in aerospace, and defence goods and services in the next five years.
This is part of the turnover of Rs 1.75 lakh crore ($ 25 billion) in defence manufacturing by 2025 that the government is aiming to achieve.

Moral reasons: The ideology that India being a pacifist, moral and responsible state should stay away from the dirty business of selling arms.
Corruption in defence exports: Defence exports often involve commissions and bribes.

There has been rise in defence PSU share from 10% to 30% on account of Rs 2,500 crore deal that India made with Philippines for Brahmos missiles.
Remaining 70 % share is from private sector.
Most India’s defence export is in the aerospace sector, where Indian firms have been manufacturing several parts, including fuselage for foreign companies.
All fuselages of American attack helicopter Apache sold across the world are now made in India by a joint venture between Boeing and Tata.
Companies like Adani Defence and Lohia Group are making fuselages for several Israeli drones.
Vietnam is procuring 12 Fast Attack Craft under a $100 million credit line announced by India and discussions are continuing to identify systems under the second line of credit of $500 million.
HAL has pitched its helicopters and the Tejas LCA to several Southeast Asian and West Asian nations and is in the race to supply the LCA to Malaysia.
India inked $375 million BrahMos deal with Philippines.
Biggest beneficiary of India’s defence exports in last five years has been Myanmar.
According to SIPRI report on international arms transfer trends, roughly 50% of India’s defence exports from 2017 to 2021 were to Myanmar, followed by Sri Lanka at 25%, and Armenia at 11%.

Critical defence systems are not supplied by exporting countries.
Technology denial regimes which limit transfer of technology.
Play a crucial role in improving India’s strategic relations with countries in strategically important geographies. Ex. Philippines in Indo-Pacific.
From being an importer of Defence equipment, Exports can play a crucial role in earning much needed foreign exchange. A similar strategy is being deployed in the petroleum sector where despite being one the largest importer, India focuses on Exporting refined products.
It can have a Rub-off effect on other manufacturing sectors like – Aircraft industry etc.
Given the security context of India’s location and its focus on militarisation, focus on defence export would help in indigenisation of Defence production overall.
PM highlighted that changing geopolitical reality was that many smaller nations were now worried about security and would look towards India as it had strength of low-cost, high-quality production.
Private sector can play an important role in Defence production and exports.
Great powers like US, Russia and West European countries are exporters of Defence equipment. With India wanting to play a key role in Global affairs defence exports would raise its prestige.

Moral reasons: The ideology that India being a pacifist, moral and responsible state should stay away from the dirty business of selling arms.
Corruption in defence exports: Defence exports often involve commissions and bribes.
Lack of availability of critical systems for exports.

Licensed production: large proportion of defence manufacturing in India involves licensed production which can act as a barrier to market-based development of the defence industry. For ex. UK is not allowing export of Tejas to Argentina as it uses components made in the UK.
Reputational setbacks from past exports: Nepal had blamed Indian INSAS rifles provided by DRDO for its ineffectiveness in handling insurgency. In 2015, Ecuador terminated contract with HAL for 7 locally designed Dhruv Advanced Light Helicopters after four of them crashed within a short time.
Breaking monopoly of major defence exporters: like US, Russia & Israel would be difficult. India will have to either cut into share of biggest exporters collectively accounting for 90.3% of trade.
Defence trade thrives on exporting country’s sphere of influence. Countries in India’s sphere of influence have small defence budgets. India will need one or two major customers like all major exporting countries have, to boost its exports.
World’s largest importers of arms include countries like Egypt, China & Pakistan which India will not export to, even if they are willing.
Countries like Saudi Arabia, Australia, Algeria, South Korea, Qatar & UAE are unlikely to abandon western suppliers and turn to India for meeting their requirement.
After sales service ecosystem: Comprehensive after sales services is crucial for emerge as a reliable supplier of defence systems.

Measures announced to boost exports since 2014 include simplified defence industrial licensing, relaxation of export controls and grant of no-objection certificates.
Specific incentives were introduced under the foreign trade policy and the Ministry of External Affairs has facilitated Lines of Credit for countries to import defence product.
In addition, defence attaches in Indian missions abroad have been empowered to promote defence exports.
The Defence Ministry has also issued a draft Defence Production & Export Promotion Policy 2020.
To boost indigenous manufacturing, the Government had issued two “positive indigenisation lists” consisting of 209 items that cannot be imported and can only be procured from domestic industry.
In addition, a percentage of the capital outlay of the defence budget has been reserved for procurement from domestic industry.
For the year 2021-22, about 63% of the capital outlay or about ₹70,221 crore will be done from domestic defence industry.
SPRINT CHALLENGES: Launched to boost to usage of indigenous technology by inducting at least 75 new indigenous technologies/products in Indian Navy. Launched by NIIO in association with Defence Innovation Organisation (DIO).
iDEX Initiative
Technology Development Fund was established Ministry of Defence to promote self-reliance.

NOTE – Strategy to boost exports will also include points given in the Defence indigenisation.