India’s defence sector has witnessed a quantum jump over the past few years. This is primarily because of the changed reorientation of the government to view it as an emerging exporter instead of ‘net importer’.

A credible effort with a suitable policy framework has been made — for instance, a liberal and transparent defence export policy, attracting foreign investment and technology, exploring joint and co-development opportunities, knowledge sharing agreements, mandating offset obligations, strengthening business ecosystem by converting 41 Ordnance Factory Boards into seven public sector units (PSUs), and Production Linked Incentives (PLIs) in sectors of concerns like specialty steel, semiconductor, electronics system, chemicals and aviation.

These policy measures have helped explore fragmented export opportunities, exception being BrahMos Missile export to the Philippines. India’s defence exports touched almost $1 billion in the first half of this financial year (2022-23) and it is expected to cross $2 billion for the first time in FY23.

Need for introspection

While the achievement needs to be celebrated, it is equally important to learn from the missed defence export opportunities. HAL was to get an order from Malaysia for one squadron of Tejas Mark 1A, but South Korea bagged it. Other countries that evinced interest in Tejas are, Argentina, Australia, Egypt, the US, Indonesia, and the Philippines.

The UAE, which at one point evinced interest in buying Tejas Mark 1A, also wants to buy BrahMos and Akash Missile systems; Indonesia, Malaysia, Singapore, Vietnam, Egypt, South Africa and Brazil too have expressed interest in the BrahMos missile system. But India has not been able to convert this interest into business action. India has been supplying surveillance and patrol vessels to Oman, Myanmar, Mauritius and Vietnam among others, but has failed to clinch any big naval defence order from these countries.

India has been exporting products such as personal protective items, offshore patrol vessels, ALH Helicopter, SU Avionics, Bharati Radio, coastal surveillance systems, Kavach MoD II Launcher and FCS, spares for radar, electronic system and light engineering mechanical parts, etc., to fragmented and low-value markets such as Maldives, Sri Lanka, Russia, France, Nepal, Mauritius, Sri Lanka, Israel, Egypt, the UAE, Spain, Chile, etc. This needs to change as these products and markets cannot help India achieve the $5 billion export target envisaged for 2025.

Export ecosystem

After successfully executing policy reforms and strengthening the business ecosystem, it is time to improve the export ecosystem. India’s private as well public sector requires dedicated export infrastructure, trade support and R&D infrastructure to scale from this level. Defence products are not sold over-the-counter, but are the outcome of capital investments planned for years with geo-strategic interests.

The three essential elements to foster the export ecosystem are: putting in place the required “Export Infrastructure”. This can be for training, handholding and market intelligence systems. Training of PSUs, especially one engaged in international business is the need of hour, as the majority of the officers come from engineering background with limited knowledge or skill-sets to manage international business operations.

A dedicated Export Promotion Council, specific to the needs of Defence Sector where export promotion officers have an understanding of the policy framework of not only India but also that of other countries involved in defence production and exports.

An exposure to international treaties/protocols (Nuclear Supplier Group/ Australia Group/Missile Technology Control Regime/Wassenar Group) and India’s UN mandated and other international commitments and obligations of EPC officials will help the Indian defence industry to not only abide by, but also deal with the required compliance processes and mechanism.

Indian defence industry is in urgent need of vibrant market information and intelligence system for tapping each business opportunity coupled with prospecting for platform-based export opportunities in international markets.

Secondly; the Indian defence sector needs dedicated ‘Trade Support’ from regulatory agencies for speeding up approvals, both related to production and export compliances. A closer look of defence items indicates that many exporters are not availing themselves of the duty drawback benefit despite the system being put in place by the Department of Revenue.

For fragmented business opportunities, there is a need to expose the Indian defence sector to trade fairs, buyer-seller meet (BSM), reverse BSMs, incubation opportunities with partner countries, and knowledge sharing. For platform based export (Tejas/Brahmos/Sarang/LCH), Indian missions abroad can play a vital role in not only exploring the evolving opportunities but in tapping them up with dedicated diplomatic support during the prolonged negotiations.

In fact, India cannot tap such big orders without rigorous diplomatic outreach. The geo-strategic outreach of such orders is much beyond the scope of mere business negotiations. Further, the government should also explore possibilities of extending line of credit to friendly countries for defence exports.

Thirdly, India’s defence industry still needs to go a long way in augmenting the R&D infrastructure for state-of-art defence platform(s). Accordingly, the Department of Defence Production, based on industry specific needs, can explore joint or co-development opportunities with other countries.

Another dimension of R&D infrastructure is that India’s defence industry should also be willing to share it with prospective friendly buyers against potential export orders, for example, a fighter aircraft for Egypt or Rocket Launcher System for Bangladesh under joint/co-development arrangements.

With global defence budgets rising, the Indian defence sector needs to tap the growing opportunities, both in the fragmented markets and beyond.

Ram Singh is a Professor at IIFT, New Delhi, and Surendar Singh is Associate Professor at FORE School of Management, New Delhi. Views are personal

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