Amongst the most important aspects constitutive of the power of the modern nation-state are its defensive and offensive capabilities. With the advancement in science and technology and with a changing, increasingly globalizing world order, this domain has grown into a burgeoning, professionalized industry. In the post-Industrial age, the rise in arms trade and the private expansion into the domain of defence have made commercial defence exchanges one of the core issues in making and unmaking alliances among countries.
India, in particular, being the second-largest importer of arms after Saudi Arabia, is a critical player in this world of global defence exchanges. It is now seriously attempting to indigenize its defence production as it realizes that the excessive dependence on other countries for its defence requirements is detrimental to its security and growth. However, the challenges of reforming a burgeoning defence sector – constituting one of the most serpentine and tricky sectors in India – overwhelmed by the bureaucratic obstructionism, are immense.
However, Modi government’s ‘Make in India’ which started in 2014 and recently launched ‘Atmanirbhar Bharat Abhiyan’ in 2020 have identified defence as one of the core sectors for accelerating domestic production. It is envisaged that India not only becomes self-reliant but also a net exporter of defence products by 2025.
Defence Sector in India: A Chequered Trajectory
The Post-Independence Complacency
In the post-Independence period, India inherited a decent defence production base consisting of 18 ordnance factories, Hindustan Aeronautics Limited (HAL) and Mazagon Docks Limited (MDL) from the British. However, the Indian government failed to further build-up on it. India’s domestic manufacturing capability remained severely hampered, especially for the first four decades after Independence.
The first few decades after the independence were marked by the dependence on legacy systems, limited domestic manufacturing by Public Sector Undertakings (PSUs) and occasional procurement. In line with the socialistic thinking of the time, these early, mostly congress led, governments would often juxtapose defence allocation and people’s welfare, and prioritize the latter. After the 1962 war, the then finance minister told the Parliament that it would not be prudent, “to provide for the paramount claims of defence by sacrificing the claims of development”, and after the 1965 war, the Parliament was told that, “It has always been our policy to restrict expenditure on defence to the maximum extent possible so as to conserve all possible sources for securing the well-being of our people” (Cowshish, 2018). Thus, outside of the public sector, defence manufacturing could not take off.
As India’s reliance on, and friendship with, the former Soviet Union grew stronger during the Cold War era, especially after the signing the Indo-Soviet Friendship Treaty in 1971, the indigenous manufacturing – an important part of Nehru’s vision – saw increasing dilution. While Soviet Union was able to fulfill India’s defence requirements and granted the latter preferred defence products, making India’s a large defence industry, yet, this arrangement disincentivized India from seriously pursuing indigenous manufacturing. For, licensed production does not involve substantial technological transfer and thus, does not set ground for indigenous production in true sense.
After the collapse of Soviet Union in 1991, the Indian defence industry was in a serious problem. Not only did India not have any major partners other than the Soviet Union to meet its defence requirements, but also the entire supply chain of spare parts, designs under construction for indigenous products and servicing of defence products got hampered due to predominantly Soviet dependence.
Post-1991 India’s Rethink on Defence Sector
After the collapse of USSR, in 1991, the idea of self-reliance in defence production gained some acceptance. Accordingly, then a committee led by APJ Abdul Kalam (in 1992) advocated increasing the share of procurement from the indigenous sources from 30 per cent in 1992-93 to 70 per cent by 2005. However, the recommendations of this committee lay in cold storage until the Kargil War in 1999 shook us out of our stupor.
Post Kargil War, subsequently, the sector was opened to the private sector and even Foreign Direct Investment (FDI) was permitted in it up to 26 percent. Then in 2002, the first ever Defence Procurement Procedure (DPP) – which sought to streamline the process of defence procurement – was belatedly outlined. In 2005, India introduced the Defence Offset Policy in its DPP. Afterwards, in 2011, the Defence Production Policy was outlined.
Defence Offsets and their Dilemmas
Defence Offsets are compensations that a buyer seeks from a seller for the purchase of goods/services. More than 130 nations incorporate offsets as a part of their defence imports. Offsets can be direct or indirect. Direct offsets on a product import can take many forms viz. co-production, component production, licensed production, FDI etc., while indirect offsets are those where benefits accrue in another sector of the economy. Besides direct offsets, India also has a more dominant form of hybrid offsets viz. compensation on defence import whose benefits may accrue on another defence product/equipment.
Besides other benefits, offsets are critical to indigenous manufacturing as they may facilitate transfer of technological know-how, production processes etc. that may facilitate domestic production. However, in practical, it doesn’t quite work that way. Offsets have a devious and complex history, with much scope of discretion, manipulation etc., thereby reducing their efficiency and prolonging the time for approvals.
Though the defence offsets in-principle must boost indigenous production, this did not happen in India, due to factors spanning lack to clarity, red-tapism, bureaucratic apathy and ministerial complacency. Successive offsets, over the years, failed to yield any benefits. Even the 2011 Defence Production Policy could not provide the needed boost, due to factors such as the apathy of Defence Research and Development Organization (DRDO), inferior product quality of Defence Public Sector Units (DPSU), lack of ambition to acquire original technology, among others.
India continued to be one of the world’s biggest importers of defence equipment, with only 30% indigenous manufacturing and almost 70% reliance on foreign imports, and with one of the top ten defence budgets in the world. The self-reliance index by Kalam committee (1992) had barely improved from 30% in 1992-93 to 36.4% in 2011-12, thereby showing the dismal state of domestic manufacturing. Exports, which are an important indicator of domestic manufacturing capabilities, also lagged considerably. Prior to 2014, India did not even have a defence export promotion policy.
A Robust Planning Process Sans Domestic Manufacturers:
Unlike the struggling nature of defence manufacturing, defence acquisitions have been a robust process, and is among the best planning processes in the world. India’s import process is conducted with reference to a three-phase time period criterion viz. 15-year Long Term Integrated Perspective Plan (LTIPP), five-year Services Capital Acquisition Plan (SCAP) and two-year roll-on Annual Acquisition Plan (AAP). The focus is on acquiring the best possible defence equipment in the world. In this process, there is little compromise, and, both, DRDO and domestic manufacturers are ignored, for the sake of maximizing efficiency in national security objectives. The government has done little to incentivize domestic manufacturers to participate in this process.
Towards ‘Atmanirbharta’ or Self-Reliance: Purposeful and Concrete Turnaround
A concrete turnaround in the defence production and export policy – with tangible results – was seen in 2014 when the new government led by Narendra Modi came into power. The sector was sought to be re-energized with speed through the Modi government’s ‘Make in India’ initiative. And recently, the government’s emphasis on ‘Atmanirbhar Bharat’ in every sector, especially in defence, has further given a great encouragement to indigenous manufacturing.
The Modi government rapidly took up the issues of defence manufacturing and exports and formulated a defence export promotion policy as early as September 2014. Procurement from indigenous units also received a substantial boost. Presently, the public sector, comprising 41 ordnance factories and 9 defence PSUs, continue to be the major source of indigenous defence production in the country. The value of this production has gone up in recent times, from Rs 43,746.48 crore in 2013-14 to Rs 52,968.13 in 2015-16 (Cowshish, 2018). In the year 2020-21, the government spent 58% of the capital budget, on domestic purchases (Singh, 2021).
The Modi government has sought to actively provide space for private sector in defence manufacturing. Private companies like Larsen & Toubro, Tata Group, Mahindra Defence Systems, Bharat Forge and around 6,000 Micro-Small and Medium Enterprises (MSMEs) are increasing their role in defence production.
In 2016, a new Defence Procurement Procedure was promulgated, which not only gave a push to indigenous procurement and but also gave global companies incentives to ‘make in India’. And now a recent negative import list of 101 weapons systems has also greatly encouraged domestic producers. A second negative import list is also in the making and may feature systems like tanks and aircraft.
In 2018, a new Defence Production Policy 2018 was promulgated to replace the earlier one. The aim was to promote the ‘Make in India’ initiative in the defence sector and create a world-class arms manufacturing base, fulfilling not only the larger goal of self-reliance but also the requirements of friendly foreign countries. Compared to the 2011 policy, it was a huge leap forward in terms of its clarity and vision. Full of incentives for domestic producers, it sought to place India “among the top five countries of the world in aerospace and defence industries.”
The 2018 Defence Production Policy has particularly given immense incentives to the private sector, especially the Micro, Small and Medium Enterprises (MSMEs). These include ease of doing business; pruning the list of items requiring industrial license for production; increasing the FDI cap under automatic route from the 49 to 74 percent for certain technologies; streamlining the offset policy to attract investment and facilitate the speedy and transparent execution of offsets; rationalising the taxation system to support domestic manufacturing; financial assistance for the development of two defence industry corridors; a corpus of Rs 1,000 crore to fund start-ups & R&D; mechanism to harness the potential of AI and Robotics for defence use; creating an Intellectual Property Cell in defence production department to for registration of intellectual property rights, and, possibility of setting up an “autonomous National Aeronautical Commission, in line with Nuclear and Space commissions.”
India has also come up with a draft Defence Production and Export Promotion Policy (DPEPP), 2020, in order to achieve its ambitious targets of indigenous defence export.
These are massive and concrete steps to domestic production and exports. The far-reaching vision focuses on scaling domestic manufacturing to a level where India would join the club of superpowers like US, UK, Russia, China and France.
|Planned Domestic Products and Weapons of Future|
|Astra BVR missile and the anti-drone system|
|Quick Reaction Surface to Air Missile System (QRSAM), to protect armoured columns from aerial attacks|
|Nag and Helina anti-tank missiles with an effective range of five km, to be launched from a modified infantry combat vehicle (called the Nag missile carrier or Namica) and the Dhruv advanced light helicopter, respectively|
|Air Defence Fire Control Radar (ADFCR) that form a key part of a ground-based air defence system|
|Rudram, which would be India’s first anti-radiation missile and will be ready for induction into service by 2023 and boost the Indian Air Force’s capabilities to knock out enemy radars and surveillance systems|
|The Smart Anti-Airfield Weapon (SAAW), which is precision strike weapon that can be used to target enemy airfield assets, with a 100 km range|
|Stand-off Anti-tank Missile (SANT), is expected to be mated to the IAF’s Russian-origin Mi-35 attack helicopters to arm them with the capability to destroy enemy armour from an improved stand-off range|
|Supersonic Missile-Assisted Release of Torpedo (SMART) to target submarines at long ranges, tested in 2020|
|Nuclear-capable hypersonic Shaurya missile with a range of 750 km, tested in 2020|
|India is also developing a new class of ultra-modern weapons that can travel six times faster than the speed of sound (Mach 6) and penetrate any missile defence.|
|In 2020, DRDO also carried out a successful flight test of the hypersonic technology demonstrator vehicle (HSTDV) for the first time.
Only the United States, Russia and China have developed technologies to field fast-manoeuvring hypersonic missiles that fly at lower altitudes and are extremely hard to track and intercept.
Source: Singh (2021)
This, however, is a massive task, given a weak domestic defence manufacturing base, and where even for local production, the technology is mainly imported. while the earlier governments were more focused on theories rather than practical implementation, things have begun to move in a concrete direction only under the present Modi government.
Regardless of the ambitious vision for defence production under Modi government and the progress made therein, the government has so far failed to address the endemic inefficiency and obstacles that have beset the public sector in defence viz. DRDO, DPSUs and ordnance factories, whose reform is essential if India is to move forward to become atmanirbhar in defence.
Despite these challenges and much friction, the government has steadily gone ahead.
The Importance of Political Will
The most important attribute underlying the Atmanirbhar Bharat in defence has been the political will of the government – something that was sorely missing during the UPA era. Due to huge piled-up pendency/permissions for approvals and ill-judged decisions, the UPA era, under a clueless AK Antony’s Defence Ministership, has been rightly assessed as a lost decade for Indian military reforms. Even procurement was halted, considerably damaging combat readiness of the forces. Worst, it was tainted by one scam after another. (Unnithan, 2014).
In 2019, the Modi government took the most significant military reform since Independence viz. the creation of the post of Chief of Defence Staff (CDS) who is tasked with defence reforms and creating a joint theatre command. More significantly, the CDS has been given a key role to check the civilian bureaucracy, for there have been long-standing complaints against the civilian bureaucracy and the defence secretary has been considerably disempowered – it is a development whose parallel is rare in other democratic countries.
In 2020, despite virulent opposition from labour unions, the government announced the corporatization of ordinance factories – which led to months’ long protests by labour unions. However, the decision was not taken back.
Recent Strides in Defence Production and Exports
In recent years, especially due to the business incentives given after 2014, results have begun to become visible. Even though India continues to remain the world’s second-largest arms importer, yet its imports have fallen and defence exports risen. India’s arms exports recorded the highest turnover of Rs. 2059 crore ($317 million) only in 2015-16. According to one set of data, between 2016 and 2019, India increased its defence exports by 700% (Times Now Digital, 2020). Rise in indigenous exports has been helped by rise in domestic production.
|Value of Defence Equipment Exported by Defence Public Sector
Undertakings (DPSUs)/Ordnance Factory Board in India
(2011-2012 to 2015-2016-upto 30.09.2015, 2016-2017
to 2019-2020-upto 31.12.2019)
(Rs. in Crore)
Source: Parliament of India; Ministry of Defence
Value of Production of Defence DPSUs and OFBs (in crore)
|Name of DPSU||2011-12||2012-13||2013-14||2014-15||2015-16||2016-17|
Source: Ministry of Defence
India is now striving to actively be a part of the global supply chain of defence products. India’s defence exports during 2015-20 grew at a cumulative annual growth rate (CAGR) of 35 percent viz. from around Rs 2,000 crore to Rs 9,000 crore. The 2018 policy has set the target of Rs 35,000 crore by 2025. In a major boost to the government’s Atmanirbharta vision, India was ranked at the 19th position as a global arms exporter in 2020.
The shift towards private sector is also marked and concrete – nearly 20 years after the private sector was first allowed in defence in 2001. In 2019-20, over 85 percent of export approvals were to private sector companies. As of 2020, nearly 500 industrial licenses (ILs) have been issued to about 300 private sector companies. Significantly, as of 2020, the share of domestic procurement in overall defence procurement was 60% – at about Rs. 70,000 crore (Roche, 2020).
The government is also focusing on enhancing the export potential of DPSUs and ordnance factories. They are supposed to attain export targets equivalent to 25 per cent of their sales, by 2025. In 2019-20, exports by the DPSUs and the ordnance factories were less than 2 percent of their revenues, revealing the scale of the challenge and Modi government’s ultra-ambitious and fast-track vision.
Key Indian Defence Export Successes under Modi Government:
- Export of offshore patrol vessel (OPV) to Mauritius in 2014 by the Garden Reach Shipbuilders.
- Export of helicopters to Nepal, Afghanistan, Mauritius, Seychelles, Namibia, Ecuador and Suriname by HAL.
- Export of structural work packages and avionics to major foreign original equipment manufacturers (OEMs) in Europe and the US by HAL.
- Supply of ammunition to the United Arab Emirates (UAE) by ordnance factories.
- Coastal Surveillance System for Maldives and Seychelles as well as Weapon Locating Radar for Armenia by Bharat Electronics Limited (BEL).
- BEL has also opened up marketing offices in six countries, and has proposed strategic alliances with global players like the Israel Aircraft Industries (IAI), for joint marketing of BEL products.
- DRDO-developed products like the Akash surface-to-air missile (SAM) are expected to achieve export success, with the government in December 2020 authorising the sale of such systems.
- As of December 2020, $930.48 million out of $4.3 billion of EXIM Bank Lines of Credit relate to procurement by other countries of indigenous defence equipment. These include landing ship tanks and training ships by Nigeria, interceptor boats by Comoros, and defence projects by Vietnam amounting to nearly $500 million, among others. Countries like Bangladesh, Sri Lanka, Mauritius, and Suriname have also used Lines of Credit to source domestically manufactured defence equipment in the recent past.
- In 2021, Philippines and India signed an Implementation Agreement for the procurement of defence equipment from India. This was a major boost despite the fact that the former found the import of India’s Brahmos system extremely expensive.
Brahmos is the first supersonic missile to enter service, capable of flying at the speed of Mach 2.8 (thrice the speed of sound) with a range of 290 km, making it difficult to intercept Brahmos by advanced surface-to-air missiles while making it easier for Brahmos to neutralize advanced fighter jets like Chinese J20.
Presently, efforts are on to increase the speed and range of Brahmos to hypersonic speed (Mach 5 and above) and 1500 km range.
ASEAN nations, and countries from Middle East, South America and Africa have expressed interest in the BrahMos and Akash Missile system.
The recent export and production achievements of India have been aided not only by domestic political effort and nationalistic outlook of the government, but also by its robust international diplomacy. India’s entry into Missile Technology Control Regime (MTCR) in 2016 has played a major role in advancing Indian domestic capabilities and scaling up defence exports. These developments have made India into a desirable ally sought by countries like Japan, US, France and Australia in a renewed vigour of activity in the Indo-Pacific.
Exports to Indo-Pacific countries like Philippines, Vietnam and others are the concrete part of such an alliance, increasing even ASEAN countries’ confidence in India. For decades, ASEAN has wanted India to play a larger role in the region, but to no avail due to India’s cautious outlook. Changes are visible now, with the strong political will of the Indian government.
The trajectory of India’s journey towards atmanirbharta in defence capabilities shows that the country has come a long way from treating defence as yet another public sector category to realizing the importance of becoming self-reliant. Under the Modi government, the country has gone a step further, emphasizing not only on self-reliance, but also on placing India within the league of select five or six countries that supply defence products to rest of the world.
As is evident from various policy pushes, the government has, since 2014, been setting ambitious targets, attempting to improve the efficiency of DPSUs while opening the sector to private companies. Available data bears out the results, especially in terms of the extremely sharp rise in India’s defence exports – even though we are a long way from the targets laid out in Modi’s government policies.
Since the COVID19 outbreak last year, the Atmanirbhar Bharat vision has especially been focused on defence. If the government continues at the present pace and increases its focus even more, India will easily be able to achieve many of its targets within the decade.
A rising and assertive India – for which capabilities in defence and infrastructure are crucial – is the need of the hour. Often democratic compulsions have prevented governments from undertaking the right decisions, with the democratic logic incentivizing the adoption of the lowest common denominator. Unlike countries like China which have a one-party authoritarian system, India is presently dealing with some of the worst side-effects of the Parliamentary system, where decisions taken in national interest are perpetually under attack from various lobbies and perpetually need to be defended. Therefore, India is in the process of becoming resurgent by going through all these challenges, weeding out much poison in the process, even at the cost of short-term suffering.
Cowshish, A. (2018, April 24). Raksha Anirveda. Retrieved from https://www.raksha-anirveda.com/defence-manufacturing-in-india-past-present-and-future/
Panag, H. (2020, March 19). The Print. Retrieved from https://theprint.in/opinion/modi-govt-made-defence-exports-jump-700-now-it-must-radically-reform-ordnance-factories/383476/
Roche, E. (2020, August 4). Livemint. Retrieved from https://www.livemint.com/politics/policy/government-charts-defence-production-targets-11596499330557.html
Singh, R. (2021, April 2). Hindustan Times. Retrieved from https://www.hindustantimes.com/india-news/how-india-aims-to-boost-its-indigenous-defence-capabilities-in-two-years-101617358023279.html
TImes Now Digital. (2020, September 9). Times Now. Retrieved from https://www.timesnownews.com/india/article/india-s-defence-exports-increase-by-700-in-two-years-ranks-19th-among-world-s-defence-exporters/650027
Unnithan, S. (2014, March 7). India Today. Retrieved from https://www.timesnownews.com/india/article/india-s-defence-exports-increase-by-700-in-two-years-ranks-19th-among-world-s-defence-exporters/650027
 Till then, India, after 1991, had started to seek technological know-how mainly for local production of important spare parts and for repairs, on a purely case-by-case basis, instead of making it a consistent policy. Some notable achievements included the 1998 India-Russia agreement to jointly produce a supersonic cruise missile, BrahMos.
 While Russia continues to be India’s dominant arms supplier, as of 2015-16, Russia’s share in India’s weapon market has decreased from 72% to 56% (Roche, 2020).