Defence Exports: Policies Very Good…But Where Are We ?

Factual position

On 05 Aug 2021, the Minister of State for Defence stated in reply to a starred question that the total defence exports during the six-year period starting 2014-15, right up to 2020-21, was  Rs 38,500 Crs. Further elaboration on the year-on-year figures given out by the Minister showed a dip in exports from 9115.55 Crs to 8434.84 Crs between the last two Financial years itself (2019-20 and 2020-21)[1].

What does this mean?

While some bit of the above dip could be attributable to the Covid fallout, not all can be ascribed thereto. The fact is, that if the current reality is any reference to go by, the lofty targets which the Ministry of Defence (MoD) set for itself,  will be a distant dream.

It is the sense of the author that while the targets may still remain afar, a lot of ground can be retrieved if the issue is pursued pro-actively and with a single-minded focus by the Govt.

This brief article is an attempt to present a viewpoint on how the above can be achieved.

Targets Revisited

On 03rd Aug 2020, the MoD came out with a most comprehensive and well-thought-through document called the Draft Defence Production and Export Promotion Policy (DPEPP). On its heels, on 28 Sep 2020, followed another ‘change document’ titled, Defence Acquisition Procedure (DAP).

These well-crafted documents actually set specific targets, and an elaboration of that carried an entire vision of how things are likely to shape up in the next 10-15 years in the entire defence and aerospace sector of the country.

In specifics, the DPEPP set the following targets

  1. Achieve a defence production turnover of $25 Bn by 2025.
  2. The above to include $5Bn in defence exports by 2025.

5 Bn is a huge 35,000 Crs. Where we are today is a pittance of the same. This is worrisome and calls for a boot-up.

Policies

The above targets were not set in a vacuum. There were supporting policies set out to achieve them. In fact, the DPEPP identified eight key thrust areas and identified strategies in terms of specific action point to make them happen. The thrust areas identified were as under:-[2]

  1. Procurement reforms.
  2. Indigenisation support to MSMEs.
  3. Optimising resource allocation to defence.
  4. Investment promotion and improving Ease of Doing Business (EoDB) Index.
  5. Encouraging innovation and R&D.
  6. Disinvestment of DPSUs and corporatisation of OFB.
  7. Improving quality assurance and testing infrastructure.
  8. Export promotion.

Notwithstanding that export promotion figured on number eight out of eight points, it was considered no less important.

Strategies to Achieve Export Targets.

DPEPP set out multiple strategies to achieve export targets. These are briefly enumerated:-

  1. Outreach through Defence Attaches (DAs).

An institutional arrangement was mandated to be put into place where our Defence Attaches posted in Indian Missions around the globe would be asked to facilitate the export activity in the countries of their posting.

Some Defence Public Sector undertakings or DPSUs (producing goods and services worthy of export) were also earmarked to work as export promotion agencies. Successes achieved by them were to be rewarded by way of ‘success fees’. It was also planned to showcase the achievements of the Indian defence industries on Indian Embassy websites.

  1. G2G and LoC/Funding.

Keeping in mind the issues related to the security and sensitivity of the export goods, efforts were proposed to be made to boost exports through Govt-to-Govt  (G2G) Agreements and through extending Line of Credit (LoC)/Funding.

  1. Revamping the Export Promotion Cell ( EPC).

In Dec 2018, the Dept of Defence Production (DDP) of the Ministry of Defence (MoD) established the EPC. It had a wide charter –

1.Co-ord and follow up export activities;

2.Interaction/co-ord with DAs;

3.Establish linkages between export promotion activities and exhibitions;

4.Interaction with potential buyers/countries;

5.Facilitating production of promotional materials and their dissemination;

6.Co-ord between private industry and MoD;

7.Interacting with various Chambers of Commerce (FICCI, ASSOCHAM etc.) for export promotion.

Two years down the line, the Govt again looked at the EPC and aimed to further strengthen it and ‘professionalise’ it (maybe implying induction of experts and adopting best practices).

  1. Revenue mandate to DPSUs and OFB.

DPSUs and OFB were mandated to have a minimum of 25% of their revenue earned from exports and claim success fee.

  1. On-boarding IOPs.

It was planned that MoD/DDP would facilitate the foreign Original Equipment Manufacturers (OEMs) by boarding more and more eligible Indian Offset Partners (IOPs) so that they are able to discharge their offset obligations in India.

  1. Global Show-Biz Events.

Following global show-biz events were aimed to be positioned as major export-boosters both by way of awareness-spreading platforms, as well as, through contract facilitation.

a) DefExpo and Aero-India.

b) Defence delegations to target countries.

c) Participation in global defence exhibitions and shows around the globe.

  1. Facilitating Export Clearance.

DPEPP called for easing the end-to-end process of export clearance to remove hurdles, multiple stages of approval and improve throughput timeliness.

  1. Making Exports Easier.

DPEPP called for the grant of the Open General Export Licence (OGEL) to the prospective exporters encouraging them to export selected defence equipment to target friendly foreign countries.

  1. Support from Services.

It was planned to take active support of the Services in exploring various opportunities for export of suitable defence products.

In this, it was probably the intention that Services, as users of combat equipment, both domestic, as well as import, will be able to advise the Govt as to which products of Indian origin could compete globally.

End Effect of Strategies.

A read-through of the above strategies surely gives a feeling that everything in the ‘to-do’ list is complete. But the question is, why we are nowhere near the lofty targets? Can everything be dumped on the head of Covid?  Of course no. Surely there is a tangible gap between the policies and their on-ground implementation.

There is however no denying the fact that the efforts are being made. A sample:-

  1. For the last five years in a row, bharatshakti.in; a digital platform has been organising a Foreign Defence Attaches Conclave in the Capital in association with the MoD. The last event was organised on 10 Nov 2020[3].
  2. The author has had a first-hand experience of attending this event has seen, that not only, it is graced by nearly all the Indian DAs posted abroad, but also, the who’s-who of the private defence industry is present ( Tata, L&T, Mahindras, Adanis, Reliance, Bharat Forge, M2K, Zen, Alpha,…+scores of MSMEs). Of course, the public sector is also all there (DRDO, BEL, BDL, ECIL, BEML, shipyards…..).
  3. At the above Conclaves, a good and comprehensive picture of what are the likely export opportunities does get presented to the DAs who also give a lot of assurances of taking it forward in their respective countries.
  4. It appears that the assurance are stopping at the rostrum only and hardly any high-decibel promises are getting converted. If that was not so, the resultant export figures would have been different.
  5. Addressing the fourth edition of this Conclave in Oct 2019 the CDS, Gen Bipin Rawat remarked that the country’s defence exports currently stood at 11000 Crs annually and were expected to rise to 35000 Crs by the year 2024. Covid stuck soon thereafter and the rest is history[4]
  6. It is for the MoD to take stock and build in a degree of accountability with the DAs who probably need to do much more than promises.
  7. 11 editions of Defexpo -the biennial event of the MoD have taken place to date[5]. The last one was in Lucknow from 5-9th Feb 2020. The Defexpo 2021 with the # ‘Empopweing MSMEs’ slated from 15-17 Jun 2021 was postponed due to the pandemic and the resultant lockdown in various States[6]. Be that as it may, these mega-events besides huge show-biz opportunities present multiple platforms to push the export agenda. Is this happening, is a moot question.
  8. It is the sense of the author that in such events, while there is a huge attendance of ‘sellers’, many of these could also be turned into buyers for their down-the-line assemblages. In that, while the MSMEs can pitch in hugely as suppliers of small items at ‘beyond-the-competition’ costs, the major players could push their products to many countries whose top-end delegations come looking for optimally-costed defence and security solutions.
  9. All the above and more is happening for sure but the results are not turning the figures northwards.
  10. It is for the MoD to address this issue and get the value for the huge time, money and resources spent on such mega-events. The net export value conversion in terms of orders must become one of the litmus tests for gauging the success of such mega-events. A regime of rewards/incentives (in the form of orders/discounts/subsidies/GST relaxations etc.) must be instituted for the participants winning export orders. In addition, other ways and means must be found to extract ‘export value from such events.

From Policies to Action

It is also for the MoD to check out the implementation status of the multiple policies it put into place to achieve the lofty export targets. In this context following points are stated:-

  1. Take account of G2G and LoC /funding activities. Check out why these are not producing the quantum they ought to produce. Where are the loopholes? What more export opportunities can be tapped?
  2. How has the EPC performed? What happened to the plan of further strengthen it and ‘professionalising’ it? What is its Report Card? How can it fare better?
  3. What happened to the export mandate the DPSUs and OFB were to generate? How many success fees have been claimed? If not, why not? How can the future group companies of the OFB are to be tasked to carry forward the agenda of export mandate?
  4. What facilitation, if any, has been received from Service experts towards export promotion? Can an institutionalised platform be put into place under the DCOAS ( P&S) to milk Service expertise on a regular basis?
  5. It was reported in Mar 2021 that India’s ranking on the World Bank’s Doing Business Report (DBR), has moved up from 142/190 in 2014 to 63/190 in 2020[7]. While not directly connected, how can these impacts reduce burdensome compliances for prospective exporters? How can a system of rewards/subsidies etc. be put into place to incentivise more and more exporters?

Need to Diversify the Canvass

Some factual details

  1. As per an open-source report dated Mar 2021, India is now exporting various types of defence equipment to some 42 countries in the world[8].
  2. The countries to which India exports not only include small ones like Seychelles, Guinea, Estonia, Philippines, Azerbaijan, Finland etc. but also, some big players ( US, Germany, Australia, South Africa, Israel..)
  3. Some of the typical items exported include – 5.56 mm cartridges, bomb suppression blankets,  hardened armour plates, protective headgear helmets, mortar shell covers, sleeping bags, bullet-proof vests, radar parts/sub-assemblies, night-vision devices, personal protective items, ALH helicopter offshore petrol vessels, , Bharati radio,  coastal surveillance systems, SU avionics, Kavach MOD II launcher, light engineering parts, electronic systems etc.[9]
  4. PM Modi, while speaking at Defexpo in 2020 had stated that the defence exports, when his Govt took office in 2014 were about 2000 Crs. In, the next two years ( 2019, 2020) it had swelled to 17000 Crs while in the next five years (i.e up to 2025), it will reach 35000 Crs!
  5. That was 05 Feb 2020. Mar 2020, the Covid struck. Rest is history.

Some Suggestions

  1. Perusing the above long list of the exported items, one fact that cannot be missed is that the list is practically devoid of any big-ticket items- the ones, that are capable of really turning the export figures substantially.
  2. The reference is to the following items worthy of export:-  (this list is only indicative and not a closed one)[10]:-

a) BrahMos supersonic cruise missiles.

b) Akash air defence and anti-missile weapon system (both for short and medium-range solutions).

c) Beyond-visual-range-air-to-air-missile (BVRAAM) Astra 2A.

d) Artillery guns and howitzers.

e) Battle management and control systems.

f) Electronic warfare systems.

g) Radars of all kinds – Early Warning, Tactical Control, Fire Control, Missile Guidance etc.

e) Soft-kill anti-drone solutions.

f) Sea-going platforms – (Outshore Petrol Vessels or OPVs, fast track crafts.). Is dreaming of making an aircraft carrier for export one day into the future out of place?

  1. The biggest need of the hour is ‘attitudinal change’ in the minds of decision-makers who believe that India does not have big-ticket exportables. We surely have and will have more of it in range and depth in the future. The only consideration will be of safeguarding our national interests’ that surely must be placed far ahead of ‘business and sales’ while choosing potential customers for exports.

So that is the big picture defence exports showing the reader – where are the targets and where are we?

While the road ahead is uphill, it is the hope of the author that we will surely get closer to our targets in times to come.

Endnotes

[1]“India’s defence exports since 2014-15 estimated at Rs 38,500 Crs,”at www.financialexpress.com.  Accessed on 09 Aug 2021.

[2]Defence Production and Export Promotion Policy ( DPEPP ) 2020,” at www.ddpmod.gov.in. Accessed on 12 Aug 2021.

[3]“Foreign Defence Attaches Conclave…,” at www.bharatshakti.in. Accessed on 13 Aug 2021.

[4]ibid

[5]“Defexpo 2020” at www.ddpmod.gov.in. Accessed on 13Aug 2021.

[6]“Defence Expo empowering MSMEs,” at www.defenceexpotn.in. Accessed on 13 Aug 2021.

[7]“Ease of doing business in India,” at www.indiacsr.in. Accessed on 13 Aug 2021.

[8]“India now exports defence equipment to 42 countries,” at www.livemint.com. Accessed on 13 Aug 2021.

[9]“Defence exports,” at www.ddpmod.gov.in. accessed on 13SAug 2021.

[10]“Policy very good –implementation?” at www.vifindia.org. Accessed on 13 Aug 2021.