Def exports: Let’s ‘buy Indian’ ourselves first

Buoyed by a recent spurt in defence-related exports, the Modi government has set ambitious targets for overseas sales by the Indian military-industrial sector over the next few years. Specifically, it has been proposed that 25% of the annual turnover of each Defence Public Sector Undertaking (DPSU) and the Ordnance Factory Board (OFB) should come from exports by 2022-23, even as the private sector is being encouraged to boost defence exports. The overarching theme is for India to become a ‘net exporter’ of defence items by the mid-2020s. While such a goal is commendable, given India’s need to sustain influence with its partners and to generate better economies of scale, it cannot be sustainably achieved without India’s own military placing timely orders for indigenous equipment that have export potential. Moreover, weapons that do not find favour with the domestic military usually don't find buyers in the international market either.

The draft ‘Defence Production Policy 2018’ explicitly seeks to achieve an annual export turnover of Rs 35,000 crore by 2025. In aid of this objective, the Ministry of Defence (MoD) has gone about streamlining its export control licensing regime, removed licensing requirements for several items altogether, created an end-to-end offset processing portal, while also setting up a defence investor cell to process queries and redress grievances. These measures have sufficed to increase the value of defence export authorizations in the past few years, which have risen from Rs 1,650 crore in 2016-17 to Rs 10,500 crore in 2018-19.

However, most of this growth has come from enhanced exports of components and sub-assemblies, a major portion of which is on account of ‘offset discharge’ by foreign original equipment makers (OEMs) selling wares to India. In fact, some of this will find its way back to India as part of major platforms built abroad. Naturally, encouraged by export growth in these categories, New Delhi is looking to tap further opportunities to tie-up with foreign OEM supply chains via the licenced production of major platforms as part of the ‘strategic partnership’ model.

But this not going to be enough for India to build its position as an arms supplier in the international market. For that, India must start exporting frontline weapon systems and platforms of indigenous design, alongside heightened exports of munitions and sensors of various types. In the case of munitions and sensors, India has already begun to secure respectable orders from allies such as the UAE and Myanmar. However, India is yet to succeed in exporting contemporary artillery systems or even air defence systems, forget about armoured fighting vehicles or fighter aircraft.

That is not surprising given that domestic orders for indigenous systems in these categories have been mostly piecemeal and that too with interminable delays between tranches. A case in point is the Pinaka multi-barrel rocket launcher (MBRL), which is already a part of the Indian Army’s arsenal and for which the private sector is the lead supplier. Orders for new Pinaka regiments have been ‘in the works’ forever, even as the system finds pride of place in the MoD’s shiny new export booklet. Obviously, the supply chain for the Pinaka is at a risk of withering away, a fact that potential international customers are bound to take note of.

Foreign militaries typically import systems in which the supplier country’s own military has reposed faith. Not only does it serve as a quality certificate, it is also indicative of the maintenance and spares support that a potential importer can expect. The after-sales support for systems built only in small uneconomic lots is likely to be uneven at best. Moreover, large production runs of indigenously developed equipment are the key to increasing the indigenous content of the same. This is especially important in an era where the threat of sanctions looms larger than ever, and customers would want security of supply.

In that context, Indian systems with the highest potential for export are those that are currently seeing noteworthy production runs and have high indigenous content. Here, too, there is a mindset of ‘let us meet our own requirements first’ that has been getting in the way of a serious export push. It almost seems as if some quarters are wary of giving up their ‘sole buyer’ privileges rather than embracing the strategic advantages of exporting major defence equipment. Beyond burnishing India’s geopolitical influence, arms exports will help increase the competitiveness and flexibility of domestic industry, and that will obviously get reflected in their overall design and build practices. The productivity gains from having to satisfy the specific requirements of foreign customers should not be underestimated.

Be that as it may, given the fact that for the medium term it is domestic capacity that will drive exports and not the other way around, it is imperative that large orders are placed for indigenous systems that have already passed muster, with repeat orders for improved tranches following soon thereafter. Otherwise, foreign militaries may choose to remain content with just looking at the pictures they see on the MoD’s brochure.