Defence Industry

India 2025: A Global Defence Exports Hub?
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Issue Vol 25.1 Jan-Mar2010 | Date : 04 Feb , 2011

The inflection point to the evolution of a collaborative defence industry model in India through a public-private partnership appears around the corner as we go into Defexpo 2010 with over 500 exhibitors in February. The exceptional interest by government and defence companies from across the globe in the Indian military industrial complex has been encouraging. Conventional wisdom says that most of the companies are making a beeline to New Delhi to partake in the billion dollar acquisitions by the Indian armed forces, from the most talked about 126 fighter MMRCA to assault rifles for the Special Forces and even flak jackets for the para military. However the really smart companies should be looking at India as a long term opportunity for establishing a global defence exports hub.

Given the size and shape of our defence industry today with a mere 30 percent indigenization this premise may appear quite fallacious. However a brief look at the potential will denote that given the right policies, synergy in various arms of the government, industry bodies and public and private sector enterprises who have ventured in the defence sector this would be achievable possibly in a decade and a half or so. Some measures that may contribute to this paradigm are right policies providing incentives to both domestic and foreign players, smooth backward and forward integration between the armed forces and defence exports to create volumes which in turn will drive economies of scales and finally coordinating and facilitating mechanisms.

“¦our traditional approach of seeing defence exports as a form of promoting conflict and hence a taboo would have to undergo a sea change.

Firstly the policies, our traditional approach of seeing defence exports as a form of promoting conflict and hence a taboo would have to undergo a sea change. This attitude is mistaken, for in the overall context of global engagement, defence sales are seen as a tool for security balance in a region. Optimum military capabilities thus establish a paradigm of control of force as opposed to use or threat of use of force. Given this perspective a change in approach to defence sales is necessary and policies need to be liberalized to promote exports based on established principles under agreements such as the Wassenaar Arrangement and Missile Technology Control Regimes which provide international legal and moral approval for such sales.

The potential of our industry to shift from a parsimonious public sector production mode to a competitive export oriented model with competitive quality may appear low at present. However the automobile and Information Technology industry, where we have successfully established a niche in the global markets in a short period of time are ideal models to replicate in the defence sector. This has come about with the right policies, incentives and minimal government intervention. While the defence sector cannot be expected to be run without effective government controls, India’s dynamic private entrepreneurs in conjunction with the vast infra-structure at the disposal of the public sector and infusion of expertise from foreign majors will be able to deliver at global scales given the right policies and incentives by the government. The low cost inputs would make India a very attractive destination. 

The advantages that would accrue from defence exports are manifold. The volume of global arms sales and transfers have been over $ 40 – 50 billion for the past few years, with most of these garnered by American and Russian companies, and others such as UK, France and even China making up the smaller pie. India’s defence public sector and ordnance factory exports were Rs 859.60 crores [US $191 million] during the year 2008-09 which is a small portion of the total production of Rs 27169 crores [US $ 6 billon]. There is a potential for enhancing volumes which in turn will add to our foreign trade which is languishing at present caught in the traditional bind.

India is losing out on considerable goodwill today, for countries are looking beyond high level visits, training events and ship calls for expanding defence relationships

Expecting global production scales from a defence industry which at present is unable to meet even a fraction of the indigenous requirements may appear unjustified, however in the long term this policy will provide us the benefit of creating surplus capacities which can meet enhanced needs during times of war indigenously and provides cushion of surplus capacity. What more this will add to deterrence, given that an adversary knowing that India does not have to fly in ammunition, spares and platforms from abroad, as it happened in the run up to 1971 or in 1999 in Operation Vijay, would not dare to launch an aggressive venture.

At the same time the potential of our defence industry to manufacture items such as helicopters, multi barrel Pinaka or missiles as the BrahMos which are within the MTCR regulations should provide us the confidence to look to defence exports as a viable means to enhance our trade basket.

Defence exports are also a tool for expanding defence cooperation and promoting national interests and are being extensively used by all major powers in the World. China and Pakistan have been using this for balancing relations in our neighbourhood, be it supplying low quality military hardware to Sri Lanka or Bangladesh. While these countries may have very much liked to have Indian arms, the tangle of internal and regional politics and lack of effective promotion of benefits arising from defence sales has prevented us from deriving advantage in using this as a tool to promote relations with our neighbours.

While it is nobody’s case to supply arms to those nations which are under sanctions by the United Nations, it should be remembered that there are no international obligations not to do so with others. In fact by not exploring these opportunities, India is losing out on considerable goodwill today, for countries are looking beyond high level visits, training events and ship calls for expanding defence relationships which is well within the existing model of inter state relations.

Given the right policies such as expanding the current foreign direct investment limits in Indian defence ventures to 49 or even 100 percent, and a matured approach to defence exports as a tool to enhance security and enlarge cooperation will provide attendant benefits of expanding our trade basket in areas which have remained unexplored so far. The DefExpo 2010 is the right time to sell this idea to major global arms corporations who would be looking for a long term commitment to India with large volumes. This win-win proposition thus needs a wider audience

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The views expressed are of the author and do not necessarily represent the opinions or policies of the Indian Defence Review.

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Rahul K Bhonsle

Rahul K Bhonsle

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