Defence Procurement: Negative Lists with Positive Implications

In 2013, the government announced Defence Indigenisation Policy and mandated that defence equipment be manufactured with at least 30 per cent of the indigenous content on the overall cost. The Defence Acquisition Policy (DAP), announced in 2020, extended the previous limit to 50 per cent of indigenous content on overall manufacturing costs. It was a significant step that showed the government’s confidence in domestic arms vendors and their capabilities to serve the needs of the Armed Forces.

Prime Minister Narendra Modi, during his address to the nation on 12 May 2020, gave a clarion call for a Self-reliant India, based on five principles—Economy, System, Infrastructure, Demography and Demand. He also announced a special economic package called ‘Atmanirbhar Bharat’. Taking it as a pivot point, the Ministry of Defence (MoD) released ‘Negative List’ of defence equipment banning their imports and to push for indigenisation to meet the aspirations of ‘Atmanirbhar Bharat’. Three such lists have been released so far. This commentary analyses the implications of these lists for the Indian domestic arms sector.

The Negative Lists

On 7 April 2022, Defence Minister Rajnath Singh announced the third Negative List. The MoD and the Department of Military Affairs (DMA) notified the import ban on defence articles under the third Negative List which will be indigenously manufactured between December 2022 and December 2027. The third negative list contains 101 defence articles including Sensors, Complex Systems, Naval Utility Helicopters, Lightweight Tanks, Anti-tank Guns, Medium Altitude Long Range Unmanned Aerial Vehicle (MALE UAV), Loitering Munitions, High Endurance Autonomous Underwater Vehicles and other weapons systems. The import ban will help Indian industry gather orders worth Rs 2,10,000 crores in the next five to seven years.

The list was made after several rounds of close consultation between the MoD, Service Headquarters (SHQ), Department of Defence Production (DDP), Defence Research Development Organisation (DRDO), and private companies. The government is taking the necessary steps along with DRDO and all other stakeholders to handhold the industry to ensure self-reliance in defence manufacturing.

To strengthen and promote domestic arms manufacturing, DRDO has signed 30 agreements for the Transfer of Technology (ToT) with 25 industries.1 DRDO has so far signed 1,430 ToT agreements with domestic arms industries, including 450 ToT agreements since 2020. These technologies mainly relate to counter-drone systems, missile warheads, laser directed energy weapon systems, radar systems, surveillance and reconnaissance systems, among others.2

The first two Negative Lists were announced in August 2020 and March 2021, respectively. Under the first list, MoD included 101 items for import ban, progressively effective from December 2020 and December 2024. The second list included 108 items for the import embargo, planned to be implemented between December 2021 and December 2025. With the inclusion of the third negative list, there are now 310 defence articles in total which would be embargoed and developed by domestic vendors.3

After the first two lists, the MoD has accorded Acceptance of Necessity (AoN) approval for 83 projects worth Rs 1.77 crores whereas projects worth Rs 2.94 crores will be generated in the next five to seven years.4 The list announced earlier contained transport aircraft, light combat helicopters, artillery guns, SONAR systems, assault rifles, submarines and corvettes, among others.

Drivers behind Indigenisation Lists

India has been one of the largest importers of arms in the last three decades. India’s arms imports fell by 21 per cent between 2012–16 and 2017–21, after continuously rising since 1991. SIPRI’s Trend Indicator Value (TIV) indicates that India’s arms imports reduced from US$ 19,432 million to US$ 15,356 million in the last five years.5  However, despite this, India remained the largest arms importer, accounting for 11 per cent of the total global arms import in 2017–21.6

India is striving to cut down defence imports and promote exports of defence equipment made by domestic industry. The draft Defence Production and Export Promotion Policy 2020 has set an ambitious goal to achieve a defence manufacturing industry with US$ 25 billion turnover by 2025, including the export of military hardware worth US$ 5 billion.7

The Government of India has taken necessary steps to enhance domestic manufacturing and promote arms export in the last several years. These steps have produced fruitful results as India became the 23rd biggest arms exporter in 2017–21.8 India showed a positive growth rate of 119 per cent in arms export between 2012–16 and 2017–21. India is now exporting arms to 42 countries and its major arms recipients are Myanmar (50 per cent), Sri Lanka (21 per cent) and Armenia (11 per cent).9

The Indian industry has been reaching out to many countries, including in Latin America for instance, to showcase its arms for export and for possible co-production and co-development. India has signed a US$ 375 million contract with the Philippines to export three batteries of BrahMos supersonic cruise missiles in January 2022. With this success, India is expecting some more big ticket contracts from countries like South Africa, Saudi Arabia, Vietnam, Indonesia and other South-East Asian countries. Nine countries from Africa and South-East Asia have shown interest in the acquisition of DRDO-made Akash missile system.10 Similarly, several countries including the US, Argentina, Philippines, Australia, Egypt and Indonesia have expressed interest in Light Combat Aircraft (LCA) Tejas, whereas Royal Malaysian Air Forces have already shortlisted LCA Tejas for acquisition programme.11

Another major reason for releasing a negative list or banning the procurement of ‘off-the-shelf’ defence equipment relates to concerns over breach of technical data. Most of the arms are technologically advanced and software-enabled, which can easily be controlled and manipulated and could lead to data breaches. While announcing the third negative list, Rajnath Singh gave reference to US’s harsh sanctions on Chinese tech giant Huawei  against its role in stealing data and breaching US national security.12

In 2011, thousands of pages of technical details of India’s Scorpene submarines were leaked. In 2016, The Australian reported that documents on the entire submarine structure, Torpedo-launch system, communication and navigation system, under and above-water sensors, and combat management system were leaked by the officials of Scorpene submarine contractor, DCNS.13 India had signed a US$ 3 billion deal with French shipbuilder DCNS in 2005, to indigenously assemble and build Six Scorpene class submarine in India.

Conclusion

The steps taken by the government to promote domestic defence manufacturing have shown some positive results. After the first two lists were announced, around 31 projects worth Rs 53,839 crores have been contracted from the domestic defence industry by the armed forces. The Indian Armed Forces have contracted around 260 programmes of these items worth Rs 3.5 lakh crores between 2015 and 2022. The import embargo is expected to help generate contracts worth Rs 4 lakh crores from domestic arms industries in the next five years.14 The indigenisation lists are expected to promote domestic arms manufacture and reduce the burden of arms imports.

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

• 1. “Raksha Mantri Announces Third List Comprising Major Equipments/Platforms”, Press Information Bureau, Ministry of Defence, Government of India, 7 April 2022.
• 2. Ibid.
• 3. Kalyan Ray, “Defence Ministry’s Third Negative Import List Prohibits Imports of Another 101 Items”, Deccan Herald, 7 April 2022.
• 4. Ibid.
• 5. Pieter D. Wezeman, Alexandra Kuimova and Siemon T. Wezemon, “Trends in International Arms Transfer, 2021”, SIPRI Factsheet, March 2022.
• 6. Ibid.
• 7. “Defence Manufacturing Industry in India”, India Brand Equity Foundation (IBEF), August 2022.
• 8. Pieter D. Wezeman, Alexandra Kuimova, and Siemon T. Wezemon, no. 5.
• 9. Ibid.
• 10. Rajat Pandit, “India Draws Up Nation’s List for Akash, BrahMos  Export”, The Times of India, 7 January 2021.
• 11. “US, Australia among 6 Countries Interested in Tejas: Govt.”, India Brand Equity Foundation (IBEF), 8 August 2022.
• 12. Rajat Pandit, “India Announces 3rd Negative Arms Import List, Rajnath Cites Huawei & Warns Against Security Breaches”, The Times of India, 7 April 2022.
• 13. “Massive Data Leak on Combat Capabilities of Scorpene Submarines”, The Hindu, 24 August 2016.
• 14. “MoD’s Big Push to Atmanirbhar Bharat Initiative”, Press Information Bureau, Ministry of Defence, Government of India, 9 August 2020.