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DefExpo 2018: Making India a Defence Manufacturing Hub and an Exporter of Arms

Mr Amit Cowshish is a former Financial Advisor (Acquisition), Ministry of Defence and former Distinguished Fellow, Manohar Parrikar Institute for Defence Studies and Analyses, New Delhi. Click here for Detailed Profile
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  • April 09, 2018

    As DefExpo 2018 gets underway at Thiruvidanthai near Chennai from April 11, all attention will be turned towards the defence minister’s press briefing on the first day and the prime minister’s visit on the second day of the exhibition. The exhibition is focussed on showcasing India as an emerging defence manufacturing hub and exporter of defence products. To give a leg up to this effort, all the 44-odd defence attaches posted in Indian missions abroad have been called back to attend the exhibition and familiarise themselves with India’s defence manufacturing potential. It is believed that this would better enable them to promote Indian defence exports once they get back to their missions. But it will take a lot more convincing that India is already set on this trajectory.

    Indian defence manufacturing, especially in the private sector, has not really picked up. Big manufacturing projects such as the Futuristic Infantry Combat Vehicle have not materialised. In terms of defence exports, India does not figure even among the top 10 or 15 exporters of arms. This situation may not change by the mere setting up of two defence industrial production corridors, one of which will be located in the geographical area where DefExpo 2018 is being held.

    According to the annual report of the Ministry of Defence (MoD), the total value of defence exports by the nine public sector undertakings, 41 ordnance factories and the 12 to 14 private sector companies was Rs 2,059.18 crore in 2015-16 and Rs 1,105.20 crore in the first nine months of the financial year 2016-17. Clearly, it is likely to prove an uphill task to achieve the export target of Rs 35,000 crore by 2025 envisaged in the draft Defence Production Policy 2018.

    But there is no denying that it is a good initiative, if for no other reason than the fact that it reflects an ambition which is good both for the armed forces and the economy. It may even be achievable provided the underlying causes of the current morass are correctly diagnosed.

    The desire to showcase India as a manufacturing hub and potential exporter of arms should not lull policy makers into believing that manufacturing continues to stagnate and exports have been low for want of a proper showcasing of India’s potential or indolent marketing.

    It will be comparatively easier to energise defence manufacturing. All that is required is the award of some big ticket manufacturing contracts, which have been in the pipeline for a long time, setting others on an irreversible course. But this requires a firm policy and adequate budgetary support. The DefExpo may be the right place to convince the world on this count.

    It may be more difficult to establish India’s credentials as an emerging exporter of arms. The challenge would be to demonstrate to potential importers that India, which is presently the largest importer of arms in the world, has the capacity to manufacture and export the equipment required by their armed forces. This is no mean challenge if one looks at the array of defence products exported by India and the countries to which these have been exported.

    According to the MoD annual report for 2016-17, the major items exported were personal protective gear, turbo-chargers and batteries, electronic systems, and light engineering mechanical parts, etc., and the major export destinations were Kenya, Bhutan, Ethiopia, Israel, Taiwan, United Kingdom, Nepal, Belgium, Vietnam and Philippines. This is not meant to either belittle the performance of Indian industry or the importance of the importing countries. Instead, the aim is to point out that for raising the level of exports India will have to not only export more sophisticated equipment, weapons systems and platforms but also to newer and bigger markets. The MoD’s annual report says that several countries have shown interest in indigenously developed products such as multi-function hand held thermal imager, light weight torpedoes, anti-submarine warfare upgrade suit, and the Akash air defence system. These items will probably be on display at the DefExpo. However, except for the Akash air defence system, none of these are major products.

    This begs the question as to which major defence equipment India is in a position to export at this juncture. There is hardly any major equipment being manufactured by the private sector. The bigger items are mostly being made by the public sector units and there are obvious problems in exporting them since otherwise exports would not have been stagnating at the present level.

    More importantly, most of the new major programmes are being managed by the public sector and practically all of them seem to be works-in-progress, the prime examples being the Dhanush artillery gun and Arjun tank of the ordnance factories and the Light Combat Aircraft programme of Hindustan Aeronautics Limited. These programmes are not at a stage where India could start exporting them especially considering persistent reports of India’s own services having reservations about the efficacy of these platforms.

    To be sure, there are exceptions. Some major platforms like helicopters have been exported by HAL in the past. The private sector is also coming into its own as manufacturers of defence products like the artillery gun. Most importantly, Indian shipyards have the capability to build naval vessels of different types. Focussing on such products during the exhibition may be more fruitful.

    It may, however, not be easy to showcase India’s export potential in all these areas. The developments that led to the Ecuador government unilaterally terminating the contract in 2015 for the HAL-built Dhruv Advanced Light Helicopters after four of them crashed may still be too fresh in the minds of potential importers. Such perceptions need to be dispelled.

    It is not easy to make inroads into the defence exports market which has been traditionally dominated by a few countries. China has of course made a late entry into this select group, thanks to Pakistan and Bangladesh which accounted for 35 and 19 per cent, respectively, of China’s defence exports between 2013 and 2017. India is handicapped in that it has no client state to which it could export and geopolitical as well as internal political factors often constrain its ability to export to certain countries in the neighbourhood and beyond who may be willing to import arms from India.

    With the policy and procedures being in a state of flux for a long time, defence manufacturing – and consequently exports – have not really picked up in a big way. The Strategic Partnership Scheme, introduced in 2017, was seen as the ultimate stimulant for energising defence production in the private sector. But the scheme has made little progress and, in fact, it is already in the process of being refined.

    Several major projects involving the manufacture of equipment and platforms in India, including aircraft, submarines and armoured vehicles, have been hanging fire. Exports cannot pick up unless these platforms start getting made in India. It is also well known that the present inertia is not only on account of procedural complexities and tardy decision-making.

    The standing committee on defence has been continuously pointing to gross inadequacy in budget outlays, so much so that the allocation may not be enough even to discharge the committed liabilities on account of the ongoing contracts during the current year. This is not complimentary to the image of an emerging manufacturing hub and exporter of arms.

    DefExpo 2018 provides a good opportunity for the prime minister and the defence minister to clear the air on some of these issues. Doing so will inspire confidence among the exhibitors and other business visitors as well as lessen the rigors of the enervating heat in Chennai at this time of the year. Hopefully, the Defence Exhibition Organisation will keep this aspect in mind while deciding on the timing of what seems to be turning into a peripatetic exhibition.

    Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India.