If the annual SIPRI data consistently showing India among the top few arms importing nations in the world is a depressing commentary on the state of India’s military-industrial capability and capacity, the 2020 figures bring some cheer. Although India is second only to Saudi Arabia in terms of imports, her defence exports for the previous year cracked the global top 25. From struggling to acquire specialised weapon locating radars (WLRs) from the USA and Israel in the 1990s, India is now exporting them to Armenia in a deal worth some $40 million. The Indian Defence Ministry’s own figures show that India managed to double the value of exports between FY2018 and FY2019, from Rs 4,682 crore to Rs 10,745 crore. At the Defexpo trade show in February 2020, PM Narendra Modi called for an export target of Rs 35,000 crore ($5 billion) annually within five years.

While the trajectory has been impressive thus far, to maintain this momentum and meet the $5 billion target will take some doing. Among the measures already adopted are a mandate for state-owned public sector units to earn 25 per cent of annual revenue through exports by FY2023, and for Indian diplomatic missions abroad to actively promote defence exports, including supporting lines of credit. Nevertheless, the arithmetic remains difficult. India’s defence capital expenditure is presently split in an approximately 40:60 ratio between imports and domestic production, which means domestic capacity is worth a little over $8 billion. A $5 billion target for exports is therefore over half of the entire domestic capital spend of the defence budget.

Furthermore, the bulk of India’s domestic capacity rests with defence PSUs, which have hardly distinguished themselves on the export front. More often than not, they simply have little to offer to the world. Organisations like the Ordnance Factories have sat on artillery drawings for decades, manufacturing neither for domestic nor export consumption. Only when faced with serious existential competition were the Bofors FH-77B plans dusted off and improved to produce what is by all accounts a phenomenal towed howitzer. Shipbuilding, certainly a success story when it comes to domestic production, is actually a non-starter on the export front — apart from a few low value defensive patrol craft sold to friendly regional countries, India’s PSU shipyards have had no export wins. Indian warships tend to be either unsuitably configured or too expensive, or both. Per tonne of floating displacement, Indian capital ships are among the most expensive yet poorly armed vessels in the world. On the aviation front, even when Hindustan Aeronautics has a solid performer in the Dhruv advanced light helicopter, it cannot compete on sustainment costs even in a military environment, and has had absolutely no success in the civil aviation world. At the systems level, PSUs are only now starting to come into their own with serious offerings that can compete with the world’s best — such as the WLRs noted earlier. While previous hardware was certainly cutting edge, it was usually built under technology transfer arrangements that limited exports.

Even when fielding competitive world-class products, PSUs are hamstrung by red tape and a poor global impression of their ability to deliver on time and on cost, to say nothing of through-life support. Arguably the most successful technology transfer programme in Indian history, the Dornier 228 light transport built by HAL, is a sad tale of missed opportunity. India controlled production of the entire aircraft, including engines and avionics, since the 1980s, and was cleared to export it virtually unrestricted. Yet HAL’s inability or unwillingness to pursue sales globally saw this market segment ceded to similar aircraft built in Canada, Europe and China, which have cumulatively sold over 2000 units against a 150 or so by HAL. In much the same vein and closer to present day, fielding and validating the Akash surface to air missile system, Pinaka rocket artillery, and the Indo-Russian BrahMos cruise missile in meaningful numbers, has not translated to any sales outside India, despite constant promises that these are imminent. A great deal of hard-nosed scrutiny and introspection is required at the Ministry and respective PSUs to understand what gaps need to be bridged to take some of India’s strongest offerings to the world.

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Nevertheless, if PSUs can be made to overcome all these legacy and contemporary issues, and are able to achieve their export targets in record time — 25 per cent of the roughly $8 billion domestic production noted above — they will still contribute less than half of the government’s defence export goal. This brings us to the meat of the problem, the pressing need to move beyond statist policies and government owned companies, and unleash private enterprise. The fledgling private sector is already punching well above its weight on the export front — most of the previous fiscal’s Rs 10,000 crore in sales came from private sector players, primarily boosted by their work in defence offsets. If fiscal policy, defence offsets, and capital spending are creatively deployed to enable much more rapid growth in the private sector, the effects will be outsize.

A pragmatic division of labour will be required to ensure greater efficiencies at PSUs while simultaneously bringing the private sector to ‘critical mass’. For instance, to mollify PSU concerns around the ‘Strategic Partnership’ model in the Defence Procurement Procedures (DPP), government yards could be allowed to retain all surface ship business while private yards are brought into submarine building, or vice versa. Similarly, air transport or helicopter production (or both) could be farmed out to the private sector, while building economies of scale around fighter and trainer production at HAL, through larger orders over longer time frames. Tanks, IFVs, and heavy vehicles could similarly be split up, with private industry taking over the IFV segment where a major recapitalisation is due soon, even as OFB continues with production of the T-90 and Arjun tanks.

India may have been able to pass the $1 billion mark in defence exports through incremental changes and minor policy reforms, but to now move up to $5 billion and beyond will require a much more comprehensive approach. Managing military procurement, production and development needs greater attention than ever before, not just to secure India’s future position as a major exporter, but also to enable modernisation in a period of economic uncertainty and flat budgetary growth.

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