Indian defence Trade: Still no bullseye, in volume and value

  • IASbaba
  • April 2, 2020
  • 0
UPSC Articles
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Topic: General Studies 3:

  • Indigenization of technology and developing new technology. 
  • Security challenges

Indian defence Trade: Still no bullseye, in volume and value

India’s defence sector has been largely dependent on foreign imports that is not in the long term Security interest of the Nation. However, the trend has been changing in recent times.

During 2009-18, Indian defence imports reduced even as exports increased as per study by Stockholm International Peace Research Institute 

Do You Know?

  • India has four companies among the top 100 biggest arms producers of the world –Indian Ordnance Factories, HAL, BEL and Bharat Dynamics Limited (BDL).
  • In 2017-18 and 2018-19, exports have increased from ₹7,500 crores to ₹11,000 crores, representing a 40% rise.
  • SMEs until 2016 accounted for a 17.5% share of the Indian defence market.

Reasons for India’s reduced imports:

  1. Make in India initiative
    • Defence Procurement Procedure (DPP) of 2016 lays out measures necessary for building India’s defence Industry
    • A new category called ‘Buy Indian Indigenously Designed, Developed and Manufactured’ (IDDM) was created under DPP-2016 which was given highest preference in defence procurement.
    • For imported defence goods, its Components & service parts from Indian enterprises (private & public sector) have been prioritised by the government
    • Simplifying “Make” procedures especially for MSMEs to encourage indigenous defence production
    • Technology Transfer: Relaxed norms that makes private partners eligible for technology transfers so as to boost their capabilities.
    • Outcome: In 2018-19, the three armed services sourced 54% of their defence equipment from Indian industry for their combined capital and revenue expenditures
  2. Reducing the size (or cancellation) of defence contracts by government has led to significant reduction of import bill
    • Acquisition of Rafale jets reduced from 126 aircrafts to 36 aircrafts
    • Cancellation of Indo-Russian joint venture for development of Su-57 stealth Fighter Aircraft
  3. Delays in supplying equipment by vendors also led to falling imports. Example: T-90 battle tanks & Su-30 combat aircraft from Russia; Submarines from France

Reasons for rise of defence exports

  • Removal of export barrier: Government has removed several products that were earlier restricted from exports
  • Easing regulations: Government dispensed with the No Objection Certificate (NOC) under the DPP that restricted exports of aerospace products & several dual-use items 

Areas that need action by government:

  • India’s defence production is largely driven by Public Sector (no Indian private player in top 100 arms producer of world)
  • India’s defence model tends to create disincentives for the private sector – Despite “Make in India”, Defence-PSUs are privileged over private industry 
  • Inadequate R&D in defence sector (both Public & Private sector)
  • Export of ammunition and arms still remain low (bulk of India’s major defence exports are Small naval crafts)
  • Small contribution to overall trade: Defence-related exports for 2017-18 and 2018-19 were 0.8% and 0.73% of the total trade, respectively, which needs to be substantially increased

Connecting the dots:

  • Foundational defence agreements signed between India and USA – its impact on India’s indigenisation efforts

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