Thursday, June 13, 2024

India: Navigating The Path To $5 Billion In Defence Exports

By Staff Correspondent

India’s ambitious plan to ramp up its defence exports to $5 billion by 2025 may depend on its ability to broaden investment in research and development (R&D) and enhance private sector participation in manufacturing, according to Neeraj Bansal, Co-head and Chief Operating Officer of India Global, KPMG in India.

The country’s path to bolster its defence sector has been lined with a series of strategic changes implemented by the Union government, such as expanding the Foreign Direct Investment (FDI) limit under the automatic route and increasing the proportion of the defence capital procurement budget set aside for domestic industry to 75%. These measures are expected to decrease dependence on imports while simultaneously boosting domestic production.

Striking significant defence deals with nations like the Philippines for BrahMos missiles and Armenia for $250 million worth of arms, India is steadily positioning its domestically manufactured defence commodities on the global stage. A recent example of this rising global footprint is the acquisition of export contracts for communication equipment, electronic assemblies and micro modules by an Indian defence electronics company from France, Israel and the United States.

Defence analyst Major General VK Madhok (r) asserts that India must capitalise on this momentum to bolster India’s global defence market share and promote self-reliance. The recent surge in investments is expected to fortify India’s R&D capabilities, following in the footsteps of nations that export high-value commodities. As part of this push, India could offer additional incentives for industries developing medium- and high-range military technology.

Catalysed by a 57% increase in the capital outlay for defence services modernisation since FY 2019, India has made significant strides in boosting its infrastructural capabilities. Bansal suggests that the Indian government could foster greater private sector participation, which currently contributes about 21% to defence production, according to the defence ministry. This could potentially enhance output and increase the current 70% share of exports.

Bansal emphasised the potential for India to create a foundation for manufacturing high-end defence components necessary for producing military-grade commodities. This step could reduce India’s import reliance and pave the way for producing full-scale defence systems to boost exports.

The Stockholm International Peace Research Institute (SIPRI) reported that global military expenditure climbed 3.7% to an unprecedented $2 trillion in 2022 amid geopolitical instability. Bansal sees this as an opportunity for India, leveraging its diplomatic reputation and political stability, to capture a more significant market share.

Recent efforts to simplify export procedures and issue Open General Export Licences have been aiding India’s export-related activities. Bansal encourages India to explore further market opportunities in Southeast Asia, Africa and the Middle East, seeking affordable and dependable trade options. He also recommends the increase of low-end technology commodities exports to establish a robust base before stepping into the fiercely competitive high-value arms market.

According to Maj Gen. Madhok (r), considering the shifting global landscape and supply chain diversification, India could solidify its status as a significant defence exporting hub by pursuing an agile and competitive strategy. This strategic approach could see India meet its 2025 target of $5 billion in defence exports, providing affordable and reliable defence systems to a broader global market.

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