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Above: The advanced Brahmos supersonic cruise missile test fired from Car Nicobar Island/Photo: UNI

India has finalised a new system to speed up sale of military equipment to friendly countries but it has to leap-frog to make up for years of indecision in defence production and exports

By Maj Gen Ashok Mehta

In January 2019, Ajay Kumar, Secretary, Defence Production, said that by the end of 2019, defence exports will touch Rs 10,000 crore. A similar forecast was made by late defence minister Manohar Parrikar when he said that the volume of defence sales would increase to $2 bn (Rs 10,000 crore). In April 2018, minister of state for defence Subhash Bhamre revised the defence export target to $5 bn (Rs 35,000 crore) by 2025. The draft Defence Production Policy 2018 indicates that it plans to boost export of defence equipment to $5 bn by 2025 through vigorous marketing, offering lines of credit to buyer countries, establishing a defence export organisation and jointly with industry, ease export clearance. But to increase dramatically from current levels of approximately $330 mn to $5 bn in seven years is asking for the moon. For this, India would require a mammoth organisation, capacity and technology, especially when export promotion for the present is limited to Defence Public Sector Undertakings/Ordnance Factories. Only if the government provides from its growing foreign exchange reserve low-cost capital to defence exporters from the private sector will production and exports get the right stimulus. Limiting arms sales to the privileged public sector is unfair and avoidable discrimination.

The strategic partnership (SP) model to encourage private sector players was approved by the Defence Acquisition Council, the highest decision-making body in Ministry of Defence (MoD) in May 2017. Only four segments will have players from the private sector—submarines, single engine fighters, helicopters and armoured carriers/tanks. The manufacture of submarines and armoured carriers was kept open to the public sector as well, thereby diluting the rationale of the SP. Restricting industrial majors to single segments is a negative provision for players like Larsen and Toubro, Tatas, Reliance, Bharat Forge and Mahindra as these companies have multiple interests. The selected SP will be co-opted for negotiations with foreign original equipment manufacturer (OEM) for production in India.

Partnerships or tie-ups between SP and OEMs may take the form of joint ventures, equity partnerships, technology sharing, royalty or any other mutually acceptable arrangement subject to ownership conditions laid down by MoD. By capping FDI in SP at 49 percent, the government has discouraged inflow of advanced technology. Overall, the government has played into the hands of public sector interests, defeating the idea of competition and level-playing field for private sector companies.

The figures of defence exports vary significantly and are befuddling. This is not surprising given the lack of statistical authenticity of government figures witnessed recently on jobs, GDP and so on. According to one source, from 1959 to 2016, the average defence exports were as low as $13.10 mn with it capping at $56 mn in 2017 and being zero in 1987. MoD figures also vary from Rs 1,100 crore in 2013-14 to Rs 2,060 crore in 2016-17 and from Rs 4,940 crore in 2015 to Rs 5,797 crore in 2017. Be that as it may, India has decided to boost defence sales to neighbourhood countries like Bangladesh, Sri Lanka and Myanmar through Letters of Credit (LsoC) which remain unutilised. “The SOP is being operationalised for defence PSUs and Ordnance Factories Board (OFB) at present. After its working stabilises, the SOP will be extended to private sector companies producing defence equipment,” said an official from MoD. The SOP will apply to countries like Vietnam and Bangladesh which have received $500 mn each as LsoC. India’s modest defence exports were mostly non-lethal equipment, but now include offshore patrol vessels, helicopters and most recently, fighter aircraft and missiles. Some of the export destinations have been Italy, Maldives, Sri Lanka, Russia, France, Nepal, Mauritius, Israel, Egypt, UAE, Bhutan, Ethiopia, Saudi Arabia, Philippines, Poland, Spain, Chile, Bangladesh and Vietnam.

India is also producing desi Bofors (Dhanush) at OFB Gun Carriage Factory, Jabalpur, developed from blueprints supplied by Bofors in the 1980s when India bought 400 Bofors guns from Sweden. In addition, the Brahmos supersonic Cruise missile produced in collaboration with Russia, the Akash surface to air missile systems, the advanced towed artillery gun system being manufactured by L&T and Tatas and the Dhanush will be available for export probably a decade later after domestic inventories have been filled. India is no longer the world’s largest arms importer which is now Saudi Arabia. In 1994, a government committee under Dr Abdul Kalam had pledged to convert the 70:30 ratio of imported to indigenous equipment to 30:70 within ten years. This target has not been met till today when India’s indigenous content of defence equipment is around 40 to 45 percent and that too in selected equipment.

India has never been a recognised defence arms exporter. In the early days, arms sales were considered immoral. It is instructive to look back at the history of defence industry in India. The first modern gunpowder and gun carriage factories were established by the East India Company in 1787 and 1811 in Ichapur and Calcutta respectively. The Ichapur factory was converted to the manufacture of rifles in 1902. The expansion and development of this infrastructure was not pursued in earnest for moral and political reasons after independence. Result? Except for a substandard rifle, no other lethal equipment was produced. The story of the incompetent Self Loading Rifle (SLR) is as well known as the development of the Arjun tank, a white elephant. Despite HF 24 Marut aircraft being manufactured in India, no Indian designed fighter, trainer or transport aircraft was developed for some time. The exception to this unfortunate trend in Army and IAF was the India Navy which had invested in ship designs and building warships, but it too, had to import guns, missiles and torpedoes for its vessels.

Although India has one of the biggest military industrial complexes among developing countries, the amount of defence exports is comparatively negligible. The sale of defence equipment being manufactured by DPSUs, OFBs and private sector is regulated by MoD in consultation with the ministry of external affairs and implemented by the Director General, Foreign Trade. There are altogether, 41 ordnance factories, eight DPSUs and around 50 private sector companies. India is the 28th arms exporter by volume. Its ratio of imports to exports was a staggering 194 to 1 while it is 1.3 to 1 for Israel, 8.8 to 1 for South Korea and 19.7 to 1 for Singapore. India accounts for a princely 0.8 percent of total world defence exports.

India organises Defexpo (defence exhibition) to attract global vendors of military equipment once every two years in February. It used to be held in Delhi till 2014 when it was moved by Parrikar to Goa, his home-town. Later, defence minister Nirmala Sitharaman took it to Chennai, Tamil Nadu. At the Defexpo last year, Prime Minister Narendra Modi spoke about his vision for the defence industrial complex, which included defence corridors in Uttar Pradesh and Tamil Nadu. Modi talked about a strategically independent defence industrial base that would make in India, make for India and export from India. The MoD has to convert Modi’s vision into defence manufacturing and sale after substituting for import. Defence attaches have been asked to market Indian defence equipment. Still for the present, this will not be easy.

India’s defence budgets have been the lowest in the last five years as a percentage of GDP, hovering between 1.49 to 1.59 percent, with peanuts for R&D. Defence allocations have gone against all recommendations of Defence Parliamentary Standing Committees and Finance Commissions which have suggested up to three percent of the GDP. But in the last three decades, it has not crossed two percent of the GDP. Only in the mid-1980s was the defence budget an impressive 3.5 percent of the GDP when the country’s military capabilities and deterrence were of high order, sufficient to shape India’s strategic periphery. Till there is substantive investment in R&D, defence production and exports will be limited.

Worldwide, defence industry survives on defence exports. India has historically been a laggard in developing its military industrial complex, the impediments to which have been moral principles, non-alignment, complex export procedures, negative lists, pricing, quality of products and licence production minus technology transfer. Nepal which is a captive recipient of virtually gratis arms transfers was also a key complainant of the quality of the Indian SLRs and advanced light helicopter. Both these were used by the Nepal Army in its civil war with the Maoists a decade ago and there was no end to criticism about their effectiveness. The HAL-made ALH was bought by Chile and two of the helicopters crashed. But since then, HAL has moved on and is competing with the China-Pakistan manufactured JF-17 and South Korea’s F/A 50 to sell LCA Tejas to Malaysia. But it is the Brahmos which is the cynosure of all eyes. Indonesia and Vietnam are countries seeking it, though since it is a joint venture with Russia, Moscow’s green light is essential. This may not be forthcoming in the altered geo-strategic environment where Russia, China and Pakistan are in the same camp.

India has to do both a pole vault and leap-frog to make up for years of indecision in defence production and exports. The final word on arms sales will be determined by the quality, reliability and cost of products that will mesh into the man-machine mix.

—The writer has fought in all the wars after 1947 and was Commander of the IPKF (South) in Sri Lanka

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