Cracking defence exports - Broadsword by Ajai Shukla - Strategy. Economics. Defence.

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Monday 10 February 2020

Cracking defence exports

By Ajai Shukla
Unsigned editorial in Business Standard
10th February 2020

New Delhi’s aim of increasing defence exports ten-fold, from the existing level of about 2,000-3,000 crore annually to over $5 billion (Rs 35,000 crore) each year, was first enunciated in the Defence Production Policy of 2018 (DPrP-2018). At Defexpo 2020 in Lucknow last week, Prime Minister Narendra Modi reaffirmed that pledge. Helped along by adding the export of civil aerospace products to that of defence kit, the export figure has reached a high of Rs 10,700 crore this year. Even so, meeting the DPrP-2018 export target still requires a three-and-a-half fold increase, which will take some doing. 

Multiplying defence exports is crucial for meeting the DPrP-2018 target of taking India into the league of one of the world’s top five defence producers, with an annual turnover of US $26 billion (Rs 180,000 crore). Currently, defence production is a mere Rs 90,000 crore per year and doubling this would require vastly increased exports. The currentdefence capital allocation is Rs 118,534 crore and the lion’s share of this is spent on foreign equipment. Next, the defence public sector undertakings (DPSUs) get to feed at the table, with the defence ministry ensuring their order books are full. The left overs, if any, are then made available to India’s private sector defence firms. The defence ministry official who interfaces with industry explicitly spelt out in a seminar of the Federation of Indian Chambers of Commerce and Industry in June that the private sector must export to survive. He warned the limited capital budget would be barely enough for paying instalments for equipment purchased in previous years, and for purchases from the public sector defence production units. Private defence firms could expect only “a small share of the pie,” he said.

To be sure, the government has moved purposefully to boost defence exports. It has charged defence attaches posted to Indian embassies across the world with seeking out opportunities to supply their host countries with Indian military equipment. New Delhi has created a liberalised trade environment for Indian defence exports by obtaining entry into the four global export control regimes. India is already a member of the Missile Technology Control Regime, the Wassenaar Arrangement and the Australia Group. Entry into the fourth – the Nuclear Suppliers Group – could be nigh. In October, Indian officials invited in 50 foreign military attaches posted with their embassies in India and made a pitch for Indian defence and aerospace products. To facilitate sales, New Delhi has offered friendly foreign countries such as Myanmar, Maldives and Sri Lanka “credit lines” for purchasing Indian defence equipment. DPSUs have been given export targets of 25 per cent of their turnover. A nodal agency, the Indigenous Defence Equipment Exporters Association (IDEEA), was set up in October for processing defence export inquiries from prospective customers across the globe.

Notwithstanding these measures, a large boost in defence exports requires the emphasis to change from exporting low-value ammunition, spares and aerospace components to the export ofhigh-value, complex combat platforms such as the Tejas fighter, Dhruv and Rudra helicopters, the Arjun tank, Akash air defence systems, Pinaka rocket launchers and a range of indigenous warships including corvettes, frigates and destroyers. The Indian military’s reluctance to buy these platforms raises legitimate questions amongst potential customers. The defence ministry must ensure the defence forces induct indigenous weaponry into service, working with industry to incrementally develop and improve the products, even as the resulting exports create economy of scale, bring down equipment prices and generate strategic heft for India.

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