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Home / Opinion / Views /  Mint Explainer: India's defence industry is spreading its wings overseas

A leading defence PSU is opening its first office in a foreign country. Bengaluru-based Hindustan Aeronautics Ltd (HAL) has announced that it is opening an office in Malaysia. HAL is participating in a tender floated by Royal Malaysian Air Force for 18 fighter lead-in trainers (FLITs), for which it has fielded its fighter aircraft Tejas. HAL is hopeful of winning the tender. But that can't be the sole reason for it to set shop in Malaysia.

In Malaysia, HAL can sell its repair and maintenance services to that country, and also use the office as a gateway to the larger Southeast Asian market. If HAL wins the Malaysia tender, it will be the second big victory for Indian defence manufacturing after BrahMos Aerospace signed a deal worth $375 million to sell three batteries of the BrahMos cruise missile to Philippines early this year.

The government says Argentina, Australia, Egypt, US, Indonesia, and the Philippines too have shown interest in Tejas.

If the big-ticket Tejas deal comes through, it will give a further boost to India’s defence exports which have been rising for the past few years.

The rise in defence exports

India’s defence exports were 1,941 crore in 2014-15. In 2021-22, they have jumped to 13,000 crore. That’s an increase of more than six times.

Exports were 2,059 crore in 2015-16, 1,522 crore in 2016-17, 4,682 crore in 2017-18, 10,746 crore in 2018-19, 9,116 crore in 2019-20 and 8,435 crore in 2020-21. According to the defence ministry, 70% contribution to exports in 2021-22 came from the private sector and the remaining 30% from the public sector.

In 2011, the government had announced a defence production policy to achieve self-reliance in design, development and production of defence equipment; to create conditions conducive for the private industry to play an active role; to enhance potential of SMEs in indigenization; and to broaden the defence R&D base of the country. This policy was the beginning of India's defence export vision.

What contributed to a rise in exports in the last few years were several steps taken by the government such as simplifying licensing for defence manufacturing and grant of no-objection certificates, offering lines of credit to small countries for purchase of arms, import controls, and proactive role played by India’s foreign missions.

A major push to exports comes through increased indigenisation which builds domestic manufacturing capacity. The government has issued three “positive indigenisation lists" in the last few years listing items that cannot be imported and must be procured domestically. Offsets, the requirement for a foreign seller of arms to India to reinvest part of the contract value in India, have also jacked up defence exports. The government issued a draft Defence Production & Export Promotion Policy in 2020 which outlined wider guidelines for boosting defence exports.

What does India export and to which countries?

BrahMos cruise missiles are exceptions to India’s defence exports. India mostly exports parts and components, spares and sub systems.

The items India exports include personal protective gears, offshore patrol vessels, advanced light helicopters, SU avionics, radios and coastal surveillance systems, Kavach MoD II launchers, spares for radars, electronic systems and light engineering mechanical parts.

Some of the major export destinations for India's defence products are the US, Myanmar, Sri Lanka, Italy, Maldives, Russia, France, Nepal, Mauritius, Sri Lanka, Israel, Egypt, UAE, Bhutan, Ethiopia, Saudi Arabia, Philippines, Poland, Spain and Chile.

In 2021-22, India’s biggest importer was the US. But in the preceding several years India’s biggest importer has been Myanmar followed by Sri Lanka.

Can India meet the high 2025 target?

Encouraged by a rise in exports in past several years, the government has set itself an ambitious target of exports worth 35,000 crore by 2025. India’s exports in 2021-22 were 13,000 crore. Is it possible for Indian defence manufacturing to meet this target?

Though India’s defence exports have been going up, they are still meagre. India is now among 25 top defence exporter countries, but its share in total global defence exports is just 0.2 per cent. And it is the biggest defence importer along with Saudi Arabia. From 2017 to 2021, 50% of India’s defence exports were to Myanmar, followed by Sri Lanka at 25%. That indicates Indian manufacturers don't have access to more lucrative markets.

The government’s focus on indigenisation will eventually be an effective solution to India’s lopsided defence trade, but the question is how much India’s defence PSUs can deliver. Before 2021-22, the share of PSUs in India’s defence exports was just 10 per cent, the remaining 90 per cent being the share of private companies. In 2021-22, the exports were still dominated by the private sector at 70 per cent.

Though the government has made policies favourable for the growth of private sector in defence exports, for obvious political reasons, no government will like to be seen incentivising the private sector beyond a limit. That leaves the government with the PSUs which are traditionally seen as slow and less efficient than the private sector, of course with exceptions. While indigenisation by itself will power exports as selected indigenised products can be exported, it may not be possible for PSUs to meet the lofty export target when they have indigenisation goals to meet too. India last year restructured 41 units under the Ordnance Factory Board into seven. This will increase efficiency and accountability and more steps in that direction are needed.

HAL's Tejas deal will certainly improve India’s defence manufacturing profile, and India needs more such deals. So far India has had no big-ticket export before BrahMos. In addition to parts, components and spares, India needs to have several big export products. That would require more funding for R&D to begin with.

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