India’s defence exports rose to Rs 13,000 crore in the Financial Year 2021-22 (FY22), reversing the downward trend witnessed in the preceding two years. The private sector companies accounted for 70 per cent of these exports.
It is heartening, not the least because it represents a healthy 55 per cent increase over the previous year’s exports. It is also a pointer to the Indian private sector companies’ potential to hold on to their footprint in the global export market. But the flip side of the picture isn’t as exhilarating.
India aspires to reach Rs 35,000 crore in defence exports by 2025. For that to happen, exports will have to go up more than two and a half times in as many years. It is not impossible but the latest upswing in exports does not portend a sustained upward trend. Serious challenges lie ahead.
India broke into the league of the 25 largest exporters during 2015-19 with 0.2% share of the global arms export, equalling the individual shares of Brazil and Portugal. After a 0.1% drop during 2016-20, India regained the earlier share during 2017-21. According to the latest report released by Sweden-based Stockholm International Peace Research Institute (SIPRI) in March 2022. India is now tied with Czechia and Jordan, figuring at the bottom of the list.
At the other end of the spectrum, the US, Russia and France accounted for 69% of the global exports at 39%, 19% and 11% respectively, while each of the remaining 22 countries accounted for less than 5%. Even China, which was among the top 5 exporters, had a share of 4.6%. These statistics are a pointer to the sway leading arms manufacturing countries have over arms exports and the uphill task countries like India face in increasing their share.
There are historical reasons, dating back to World War II, why some countries are now world leaders in defence manufacturing and have managed to perpetuate their dominance. But that is not the only reason as the case of China becoming one the five largest exporters, albeit with a significantly smaller share in exports, demonstrates.
Prima facie, two factors account for this: ownership of an array of state-of-the-art military equipment for which there is a demand in the export market, and one or more major customers ready to spend substantial sums on import. The US, Europe, Russia, and now China, score on both these counts over countries like India.
On 4 August 2021, in reply to a question, Minister of State for Defence Ajay Bhatt informed the Lok Sabha that the major defence items exported by India included Weapon Simulators, Tear Gas Launcher, Torpedo Loading Mechanism, Alarm Monitoring & Control, Night Vision Monocular & Binocular, Light Weight Torpedo & Fire Control Systems, Armoured Protection Vehicles, Weapons Locating Radar, HF Radio, Coastal Radar System etc. It sounds impressive, but these are not high-value items with high revenue-earning potential.
At any rate, most of the exported goods included ‘parts & components’, as admitted by the Minister in his reply to the same Parliament question. India cannot expect to become a major contender in the export market by exporting parts and components, or with an occasional big-ticket deal like the Rs 2,770 crore contract -probably the first of its kind- concluded in January this year to export BrahMoS supersonic missiles to the Philippines. Interestingly, the export figures for the FY22 include the value of this contract though it is unlikely that it generated any revenue during the year.
The big-ticket export contracts have been far and few between. The Union Cabinet had approved the export of the indigenously developed Akash short-range Surface to Air Missile (SAM) system in December 2020 and India has been looking for a foreign buyer for indigenously developed Light Combat Aircraft (LCA) for more than a year. While it is true that it takes a long time to finalise such deals but the developments in respect of both these potential deals so far seem too tenuous.
There is also the question of reputation. In 2009-11, HAL had sold seven indigenously developed Advanced Light Helicopter (ALH) Dhruv to Ecuador, but four of these crashed. It prompted Ecuador to unilaterally terminate the contract in October 2015 and resulted in a legal dispute with HAL. More recently, a BrahMos missile was fired accidentally from an air base in northern India in March this year which ended up deep inside Pakistan. Such incidents are a setback to the reputation of the India-built platforms.
The SIPRI data also establishes that the leading arms exporters have benefitted from an exclusive club of one or more buyers with substantial budget outlays for the acquisition of arms. Suadi Arabia accounted for 23 per cent of the US exports during 2017-21, followed by Australia (9.4%) and South Korea (6.8%).
Russia, the second largest exporter during the same period, benefitted from exports to India (28%), China (21%), and Egypt (13%). 58 per cent of exports from France, the third in the hierarchy, were to India (29%), Qatar (16%), and Egypt (13%). As for China, it has impoverished Pakistan to thank for its spectacular rise to the fourth position.
Though on the verge of default, Pakistan never seems to lack funds for acquiring arms. It accounted for 47% of China’s export during the aforesaid period, followed by Bangladesh (16%) and Thailand (5%). In contrast, the main importers of Indian arms during the same period were Myanmar (50%), Sri Lanka (25%) and Armenia (11%).
There has been a dramatic shift in the FY 22 in the profile of India’s clients, with the US emerging as the largest importer, but it will be premature to view this as long-term development. The jump in exports to the US could possibly be due to the MoD pressing upon the US companies to make up the chronic shortfall in fulfilling their annual offset targets for previously imported equipment. Revenue earned by the Indian companies would diminish once these offset contracts are completed.
The next largest export in the FY22 was to the Philippines, with which India signed the Rs 2,770 crore BrahMos deal in January this year. Including a deal against which there was no revenue earning in the FY22 in that year’s exports is ingenuous. The remaining recipient of India’s exports included unnamed countries in South-East Asia, West Asia, and Africa, which are unlikely to boost India’s exports on a sustained long-term basis.
Clearly, the road ahead is long and the journey arduous. It would be a mistake to assume that simplification of the procedure for export, which has been the government’s priority, is enough to boost export. What is needed is a dispassionate appraisal of the current policies and procedures and, more importantly, a strategy for pitching made-in-India defence equipment which holds attraction for countries with substantial financial capacity to import defence equipment from India.