India’s Defence Exports

Syllabus: GS3/Economy

Context

• As per the CareEdge Ratings report, India’s defence sector production is set to grow at a compound annual growth rate (CAGR) of around 20% during FY24-FY29.

Major Highlights

• Budget Allocation: India’s defence budget has consistently ranged between 1.90 to 2.8% of its gross domestic product (GDP).
  • For the fiscal year 2024-25, Rs 6.22 lakh crore has been dedicated for the defence sector.
• Indigenous Manufacturing: Supported by initiatives like ‘Make in India,’ the country is steadily reducing its reliance on foreign suppliers and advancing its defence capabilities.
• Defence Exports: Over the last six years ending FY24, Indian defence exports have grown at a CAGR of approximately 28%.
  • India’s defence exports will grow at an estimated rate of about 19% during the next 5 years (i.e. from FY24 to FY29).
  • India’s defence exports include various products, such as aircraft, naval systems, missile technology, and military hardware.

India’s Defence Export

• India has set a defence export target of ₹50,000 crore by 2028-29.
• Defence exports of India have touched Rs 21,083 crore in the FY 2023-24, a growth of 32.5% over the last fiscal year.
• The private sector and the defence public sector undertakings (DPSUs) contributed around 60% and 40%, respectively, in exports from India.
• The country is currently exporting military hardware to around 85 countries, with around 100 local firms involved.
• According to the Stockholm International Peace Research Institute, between 2000 and 2023, Myanmar remained the largest importer of Indian weapons, accounting for 31% of India’s exports and Sri Lanka followed at 19%.
  • Mauritius, Nepal, Armenia, Vietnam, and Maldives were other major importers.
• India’s defence production grew substantially from Rs 74,054 crore in 2016-17 to Rs 108,684 crore in 2022-23.
  • Out of this, 21.96% of the production was done by private companies.

Advantages of Growth in Defence Production

• Self-defence: The presence of hostile neighbors like China and Pakistan makes it necessary for India to boost its self-defence and preparedness.
• Strategic advantage: Self-reliance will make India’s geopolitical stance strategically stronger as a net security provider.
• Technological advancement: Advancement in the defence technology sector will automatically boost other industries hence catapulting the economy further ahead.
• Economic drain: India spends around 3% of GDP on defence and 60% of that is spent on imports. This leads to an immense economic drain.
• Employment: Defence manufacturing will need the support of numerous other industries which generate employment opportunities.

Concerns

• Narrow Private Participation: Private sector participation in the defence sector is constrained by the lack of a conducive financial framework, that means our defence production is unable to benefit from modern design, innovation, and product development.
• Lack of Critical Technology: Lack of design capability, inadequate R&D investment, inability to manufacture major subsystems and components hamper indigenous manufacturing.
• Lack of Coordination Between Stakeholders: India’s defence manufacturing capability is hindered by overlapping jurisdictions between the Ministry of Defence and the Ministry of Industrial Promotion.

Government steps

• Simplification of Export Procedures: The government has introduced the India Defence Mart, an online portal for defence exports which enables companies to apply for export licenses and track their applications online.
• Scheme for Promotion of Defence Exports (SPDE) to promote exports of defence products, which includes provision of financial support for attending international defence exhibitions, marketing, and publicity of Indian defence products abroad. 
• Technology Upgradation Fund Scheme (TUFS) to encourage the modernization of the Indian defence industry.
  • The scheme provides financial assistance for technological upgradation and modernization of manufacturing facilities.
• The government has introduced a Strategic Partnership Model to boost domestic production of defence equipment through partnerships with foreign companies.
  • The BrahMos missile is a testament to the strong defence cooperation between India and Russia.
• Along with initiatives like Make in India, the GoI has established an Export Promotion Council (EPC) to encourage defence exports.
• FDI in the Defence Sector has been enhanced up to 74% through the Automatic Route and 100% by Government Route, to promote export and liberalize foreign investments.
• The government has established 2 dedicated Defence Industrial Corridors in the States of Tamil Nadu and Uttar Pradesh to act as clusters of defence manufacturing that leverage existing infrastructure, and human capital.  

Way Ahead

• Green Channel Status Policy (GCS) has been introduced to promote and encourage private sector investments in defence production to promote the role of private sector in defence production. 
• India has around 194 defence tech startups building innovative tech solutions to empower and support the country’s defence efforts.​
• With the government’s emphasis on easing restrictions on foreign investment in order to achieve India’s goal of an Atmanirbhar Bharat, the growth trajectory of the Indian defence sector remains strong.
• The growth is a reflection of global acceptability of Indian defence products and technologies.

Source: DD