Is Defence turning out to be the next Big Export sector

The recently held DefExpo India 2020 held in Lucknow, turned out to be a grand success. The theme of the Expo was ‘India: The Emerging Defence Manufacturing Hub’ and the focus was on ‘Digital Transformation of Defence’ and that's exactly where India stands in the global market. Harnessing the potential of the Indian industry, by initiating new technologies and solutions is vital for the desired growth of this industry.

The government's recent policies have boosted this sector in domestic manufacturing and export of defense equipment under flagship scheme Make in India in Defence. This has resulted in substantial growth of defense export from the country as it surged by 700% in just two years, from $213 million in FY 2016-17 to $1.5 billion in FY 2018-19.  Encouraged by this growth, the government set a target of achieving defense export worth $4.87 billion (Rs 35,000 crore) in the coming four years. 

 Export Profile of Indian Defence Industry

1. The value of exports for the 2018 -19 stood at Rs. 10500 crores of which  India's 8 Defence Public Sector Undertakings (DPSU) and 41 Ordnance Factories (OF) contributed INR800 crore (7.6% of total defense exports).

2. The major export destinations have been Australia, Italy, the US, Sri Lanka, Russia, France, Maldives, Nepal, Mauritius, Sri Lanka, Israel, Egypt, UAE, Bhutan, Ethiopia, Saudi Arabia, Philippines, Poland, Spain, and Chile, etc.

3. The major defense items being exported are

i)  Personal Protective items - protective headgear, bomb suppression blankets, soft and  hard armor plates, helmets

ii) Offshore Patrol Vessels

iiI) ALH Helicopter, 

iv) 5.56x45mm Ball MK N(SS109) cartridges

v) SU Avionics, Bharati Radio

vi) Coastal Surveillance Systems,

vii) Kavach MoD II Launcher and FCS

viii) Spares for Radar

ix) Electronic System 

x) Light Engineering Mechanical Parts etc.

What has prompted this growth

1. Bringing in Private players -The Government has opened up the Defence sector to private players to provide impetus to indigenous manufacturing. The opening up of the industry also prompts foreign equipment manufacturers to enter into strategic partnerships with Indian companies. 

2. Initiation of FDIs in surge growth - A Defence export strategy has been formulated with a view of facilitating Defence Public Sector Enterprises (DPSUs) and private defense players in exploring business opportunities abroad. To achieve this the Government has permitted 100% FDI in the Defence industry; wherein 49% is allowed under automatic route and beyond 49% through Government route.

The Government has been instrumental in boosting exports in this sector. Over the past five years, however, a plethora of policy reforms have sown the seeds for a broader ­private ­sector participation, to bridge the gap ­between defense ­modernisation and indigenization. The ­proposed ­investments depicted in the license ­applications from 2015 to 2019 are worth Rs 13,743.53 crore. In the same period, the government has ­approved Acceptance of Necessity (AoN) to 204 proposals worth Rs 4 lakh crore, under categories enabling indigenous capital ­procurement, in which Request for Proposal is issued only to Indian industries. The equation ­between the AoN worth (Rs 4,04,880 crore) and the proposed investment (Rs 13,743.53 crore), is a clear indicator of the scope for much more participation, particularly from micro, small and medium enterprises (MSME). 

Opportunities to bank on

• The Make in India concept has brought about a difference in the defense sector given the growing array of ind­igenous military hardware

• India’s advantage is its scale of operations, which makes it attractive for investment. The procurement strategy, therefore, must drive more FDI. 

• Likewise, the strategic partnership ­programmes and offset provisions need quicker exploitation.

• Introduction of AI/robotics for ­surveillance and targeting, and logistic functions, offering opportunities to even improve teeth to tail ratios. This has prompted the Ministry of Defence to set up its AI implementation committee. 

• The Defence Procurement Procedure (DPP) had redefined design and development by the private sector—by dividing the ‘make procedure’ into two: Make I with 90 percent government funding and Make II with no government funding. 

Some key innovations and orders bagged

1.   DRDO, with many achievements to its credit. Among the recent ones were the development of an anti-drone system that was deployed to provide aerial security to US President Donald Trump during his visit to India recently. The anti-drone weapon can detect and neutralize any suspicious devices that could have intruded into the boundaries of the US President’s safety zone.

2.  It is also known for successfully pulling off an indigenous operation code-named -- Mission Shakti -- in which a defunct satellite in low-earth orbit (LEO) was destroyed in just three minutes. 

3. Hindustan Aeronautics Limited is manufacturing some very competitive aircraft and helicopters, including ‘Light Combat Aircraft’, ‘Chetak’, and ‘Cheetah’. Recently, 

4. HAL announced an ambitious project of developing a 10-12 tonne attack helicopter by 2027, touted to be India’s answer to America’s Apache helicopter, which is manufactured by Boeing.

5. Bharat Electronics Ltd (BEL) - BEL and DRDO sealed a deal recently with the Armenian government to build four weapon-detection radars beating Polish and Russian firms.

6. The defense arm bagged a deal to manufacture air-to-air refueling equipment for British manufacturer Cobham. 

7. Kalyani Rafael Advanced Systems (KRAS) bagged its first order worth $100 million for manufacturing 1000 Barak-8MRSAM missile kits from overseas partner Rafael for Indian Army and the Indian Air Force (IAF).

8. Export of Dornier Do 228 aircraft and coastal surveillance system to Seychelles

The way forward

While India’s trajectory has made significant progress over the last five years, its share of global arms exports is only 0.17 percent. This indicates both our underperformance and the big opportunity that beckons us. 

The coming years will signify India’s foothold in defense manufacturing. India may have been able to pass the $1 billion mark in defense 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. To reach this milestone, ­competency ­mapping of the private sector must be the next step with faster procurement cycles and synchronizing procurement cycles with ­technological cycles would be ­essential. The introduction of an end-to-end digitized procurement system with accountability and timelines strictly defined can be encouraging. Once ‘Make in India’ reaches its full potential, then the focus can shift to a full range of medium and high military technology weapons and equipment. Indian diplomatic missions abroad need to actively promote defense exports. Managing military procurement, production and development need greater attention than ever before, not just to secure India’s future position as a major exporter, but also to enable modernization in a period of economic uncertainty and flat budgetary growth. India’s vision of being the state of the art defense equipment provider would soon come to pass.