Wednesday, May 29, 2024

Defence Export Target Of India – How Is It Shaping Up?

Group Captain Anupam Banerjee (r)

Senior Consultant SIDM

Over the past month, two interesting news articles relating to India’s Defence Exports have been published. First, India signed a deal with the Philippines to export the ‘Brahmos’ Supersonic Cruise Missile and second, the IAF showcasing indigenous ‘Tejas’ fighters in the ongoing Singapore Air Show, and India aims to close a deal of selling the jets to Malaysia. It appears that the efforts to promote the Defence Export of India is finally picking up pace.

Government data shows that the value of exports of defence items from India have gone up from Rs. 1940 crore in FY 2014-15 to Rs. 8434 crore in FY 2020-21. This is a cumulative annual growth rate (CAGR) of more than 30 per cent. But since the baseline was very low, the figure may indicate a skewed picture. However, it is essential to note that the Ministry of Defence (MoD) has set an ambitious defence exports target of Rs 35,000 crore by 2025. The push for defence exports is part of India’s effort to integrate itself into the global defence value chain and become one of the leading countries in the defence sector. Many reforms/steps have been taken by the Govt of India to boost Defence exports and enhance the ease of doing business during the last five years. Some of them are mentioned below.

The Department of Defence Production has formed a separate cell to coordinate and follow up on export-related action, including enquiries received from various countries. Its mandate is to share leads with private sector & public sector companies and facilitate exports. In a welcome move, the Director-General of Foreign Trade (DGFT) has delegated its authority and notified the Department of Defence Production (DDP) as the Licensing Authority for export items in Category 6 of Special Chemicals, Organisms, Materials, Equipment and Technologies (SCOMET). 

The Standard Operating Procedure (SOP) for the export of munitions list items have been simplified, and a complete end-to-end online portal for receiving and processing export authorisation permission has been developed. The applications submitted on this portal are digitally signed, and the authorisation is also issued digitally. Also, MHA has delegated its powers to the Department of Defence Production to issue export licenses under Arms Rules 2016 in Form X-A for parts & components of small arms. With this, the Department of Defence Production becomes the single point of contact for the exporter to export parts and pieces of Small Arms & Ammunitions.

In Intra-Company business (which is especially relevant for the outsourcing of work by the defence-related parent company abroad to its subsidiary in India), the earlier requirement of getting an End User Certificate (EUC) from the Government of importing country has been done away with, and ‘Buying’ Company is authorised to issue the EUC. In addition, the requirement of the Government signed EUC in cases of providing engineering services (ToT related to Munitions List) to Wassenaar Arrangement (WA) Countries has been dispensed with.

Legitimate export of systems/platforms for the civil end-use to WA Member countries are considered subject to submission of EUC or import certificate or equivalent document issued by the Government of the importing country. Additionally, the legitimate export of small arms and body armour parts and components for civil use is now being permitted after prior consultation with MEA.

For the export of items for exhibition purposes, the requirement of consultation with stakeholders has been done away with (except for select countries). Also, powers have been delegated to DRDO and CMDs of DPSUs for exploring export opportunities and participation in global tenders.

The validity of Export Authorization for export of parts & components has been increased from two years to the date of completion of order/component, whichever is later. The Government has also notified the Open General Export License (OGEL) – a one-time export license, which permits the industry to export specified items to specified destinations enumerated in the OGEL without seeking export authorisation during the validity of the OGEL. OGEL has been integrated with an end to end online portal.

Scheme for Promotion of Defence Exports has been notified to provide an opportunity to the prospective exporters an option to get their product certified by the Government and allows access to the testing infrastructure of the Ministry of Defence for initial validation of the product and its subsequent field trials. The prospective exporter can produce the certificate for marketing their products suitably in the global market. This was a longstanding demand of the Indian Defence Industry.

The Defence Ministry has also issued a draft Defence Production & Export Promotion Policy 2020. Additionally, a scheme has been notified to provide financial support to Defence Attaches for promoting exports of India made defence products in the countries to which they are attached. 

On the domestic front, to boost indigenous manufacturing, the Government had issued two “positive indigenisation lists” consisting of 209 items that cannot be imported and can only be procured from domestic industry. In addition, a percentage of the capital outlay of the defence budget has been reserved for procurement from domestic industry. For the year 2022-23, about 67% of the capital outlay will be done from the domestic defence industry, as per the budget provisions.

The government has also recognised the need to leverage credit financing suitably to enhance defence exports. However, there are still some scopes for improvement in Export Authorisation Procedures, especially in Appendix 2 items. In many cases, the timelines for submitting samples are very short, and it becomes difficult to get the Export Authorization in time, especially for items requiring consultation. The policy for the issue of EA for samples for submission in tenders could be reviewed so that these can be issued within the timeline of 14 days that has been kept for other than Appendix I items.

Also, in case of an export order for a package/bouquet of products that includes some items outside the scope of manufacture of the exporter, policy provision should be made to enable the export of the complete bouquet/ package. The SOP permits import/ export of such items provided the exporter has a valid IEC code, but the present policy presents a practical problem where the component/ item is exported as part of a system/ package.  

While the trajectory has been impressive thus far, maintaining this momentum and meeting the $5 billion target will take some doing. If the country wants to become an exporter of defence items after decades of importing, it will require a mindset change at all levels and for all stakeholders. Changing policies by Govt is only an enabling action. The private sector has come to occupy an essential role in India’s defence exports saga, and if Indian companies need to compete in the global market, they need to invest in R&D and in niche technology areas, which may not always result in immediate orders. 

The defence products have a long gestation period, but once a fully developed platform is rolled out, the supply chain is active until the platform goes out of service. In short, no shortcut to success exists in the domain of defence equipment, and only world-class quality can tilt the balance in our favour from one of the largest importers of Arms to a net exporter.


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