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July 1, 2014

How to transform India from world's largest defence importer to major exporter

The government's recent decision to deregulate manufacture of a number of items used by the defence forces will result in new players and SMEs entering the sector. Easy entry will result in an increase in the number of manufactures, with the benefit of competition that will improve both quality and cost-effectiveness. This will also encourage them to seek export markets for their products.

Socio-economic growth and a credible defence capability achieved through self-reliance are fundamental for a nation to secure a globally respectable position. In a world where a few developed countries enforce control regimes on defence equipment and technologies, it is imperative for a country like India — a growing economy with formidable capability, to maximise indigenisation and self-reliance in defence equipment. Further, with defence exports becoming an increa-singly effective diplomatic tool in assuring regional peace and secu-rity, it is crucial for India to be-come a global defence exporter.

A small country like Israel, which gained independence at almost the same time as India and with a population less than 1% of India's, today accounts for 10% of total global defence exports. China which until 2006 was the largest importer of defence goods, is today the fifth largest defence equipment exporter. Paradoxically, India, with its huge pool of technically qualified, globally competitive manpower, in dire need for employment for its population, has emerged as the largest importer.

India has all the attributes of becoming a major exporter of defence equipment. Considerable investments have been made over the years in creating indigenous defence manufacturing infrastructure in the form of DRDO labs, DPSUs, ordnance factories, some highly reputed educational institutions and a few industries in the private sector. The large young population can provide skilled, cost-effective manpower for the defence industry and the huge SME base can contribute effectively, both directly as well as in collaboration with large system integrators.

Recent amendments to the defence procurement policy have provided a new thrust for indigenisation. Introduction of major programmes in the 'make' category, allowing participation of Indian public and private industry, is a big step in the right direction towards developing cutting-edge technology. Defence offsets and the proposed liberalisation of FDI in the defence sector must be leveraged judiciously to enhance indigenous capabilities.

The defence industry is capital intensive and characterised by a cyclical nature in order placement for domestic needs; it typically needs a large customer base to be competitive and to sustain business. This can be achieved only when both domestic and export markets are opened for industry.

A well-defined policy to promote defence exports, complying with international agreements such as the Wassenaar Arrangement and Missile Technology Control Regime, will provide the necessary international legitimacy.

It is time now to shed the public vs private sector mindset and consider the entire defence industrial base in India as the 'national defence sector'. It is important that domestic programmes are opened up for competition wherever possible. SMEs capable of developing niche technologies should be encouraged, while the stalled pro-posal to identify platform builders and system integrators — Raksha Udyog Ratnas, must be immediately implemented.

To safeguard the interests of the defence industry in the private sector, and to derive the maximum benefit from synergies, it is essential to eliminate the conflict of interest inherent in the current structure of ministry of defence. The department of defence production must be made independently responsible for equitably addressing the concerns and synergising strengths of the country's defence industrial base, including the private as well as public sectors. It should also be held accountable for achieving preset time-bound targets for indigenisation and exports.

Globally, respective governments strongly promote sales of their defence exporting firms without discriminating between private and public sectors. UK Trade and Invest and SIBAT-Israel, are good examples. It is common for heads of state of developed nations to actively promote sale of their defence products.

In 2013, for the first time, top officials of DRDO led an Indian defence industry delegation to ADEX 2013 in Seoul. Such initiatives should be encouraged and strongly supported by the political leadership.

Increased emphasis on R&D and innovation is vital for achieving self-reliance in defence equipment. In order to realise the untapped potential in indigenous technologies, DRDO must be authorised to form partnerships with organisations of their choice for cutting-edge technology deve-lopment, while simultaneously allowing use of their facilities on commercial terms by companies in the defence field.

Defence exports are often used as a diplomatic tool either through supplies as goodwill gestures or through soft loans and lines of credit. This policy has been used extensively and effectively by China to expand its presence in the Indian Ocean Region, Africa and Latin America. India should evolve its own "Integrated Defence Production and Export Policy" learning from the success stories of countries like China, Israel, South Africa and South Korea.

India's approach to defence exports will be guided by changes in the geopolitical situation, as we build stronger diplomatic ties, particularly with nations in the Indian Ocean Region. If the government and national defence industry embrace the challenge, India can not only effectively meet domestic needs but also emerge as a major exporter of defence products. We need a major thrust — a national mission on defence equipment exports.

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