In defence of making the impossible, possible

In defence of making the impossible, possible
In defence of making the impossible, possible

On May 14 earlier this year, India's defence minister Manohar Parrikar set an ambitious target of $2 billion per annum for arms and ammunition exports from the country in the next two years. By any yardstick, this is a bold statement of intent. After Saudi Arabia, India is the largest importer of defence equipment in the world. In 2015, arms worth $ 4.3 billion were shipped from various parts of the world into the country. In contrast, exports from India was worth a measly $ 330 million-an over two-fold increase over the previous year but less than 1 per cent of the $ 65 billion global defence trade during the year. The reasons for this imbalance are multifarious. Majority of defence production in India today is concentrated with state owned companies that lack global cutting edge production capabilities or research and development. At the same time, riddled with multiple bureaucratic procedures and secrecy, the sector has for long scared away private sector companies. There are some signs of change. Soon after the BJP led Narendra Modi government was sworn-in two years ago, the administration has made concerted moves towards improving ease of doing business. Significant steps in the sector have been taken to simplify and streamline standard operating procedures for issuing no objection certificates (NOC) related to export of military stores by domestic companies. For example in March this year, Parrikar de-listed 66 per cent of items from export clearances. An even bigger reform was announced in June when 100 per cent foreign direct investment was allowed in the sector. Enhancing production in the country is one thing and being able to export to other countries is quite another, yet Parrikar's target may not be that outrageous after all.

“I know it is not easy. Weapons and export of defence goods have double problems. One is whom you are exporting to and the second is one has to go on checking all international requirements,” he says. “From a meagre $ 140-150 million, this year, I think we have crossed $330 odd million. We have doubled the export. I have set a target for myself. In the next two years, why not touch $2 billion. It is not an impossible target.” Not impossible, but it will take much more than just planning and strategy. What India exports and to whom Among developing economies, India has one of the largest defence industries in the world with 41 ordnance factories, nine defence public sector undertakings and an emerging private sector that includes the likes of Tata Motors, Ashok Leyland, Larsen & Toubro, Mahindra and Mahindra and Reliance Defence. Traditionally major items of export from India were restricted to old variants of aircrafts, ships, armored vehicles and artillery. In the recent past, the basket has diversified to include light helicopters (Cheetal) to Afghanistan, Nepal, and Namibia, DRDO developed HMS-X2 sonars to Myanmar and protective armor to NATO members like Turkey. A range of spares, mechanical components, and electronic assemblies are also being supplied to global majors as a result of offset agreements. Exports also included Dhruv helicopters and bulletproof jackets to Nepal, Sukhoi 30 avionics and MIG spares to Malaysia, offshore patrol vessels (OPV) and ammunition to Mauritius and Jaguar aircraft spares and services to Oman. Shipments are not restricted to developing countries alone. India exported forging equipment, electronic assemblies, flight control panels to the US, while transmitting tubes were sold to the UK and MIG and Sukhoi 30 aircraft spares and services to Russia. The biggest milestone so far however, has to be the export of the 1,300-ton offshore patrol vessel MCGS Barracuda to Mauritius in December 2014. Built by DDP-controlled Garden Reach Shipbuilders & Engineers (GRSE) for $50.8 million it is India's first ever export of a home built warship. The country has also supplied Sri Lanka and other Indian Ocean Region countries with refurbished boats in the past.

The potential for exports in future As the overall quantum suggests, the potential for export of made in India equipment has only been exploited on the surface. While the Barracuda has been a high point, government owned Goa Shipyard Limited is currently building two OPVs for the Sri Lankan Navy, as well as eleven fast attack craft (FAC) and two fast patrol vessels for Mauritius. Parrikar himself has been actively leveraging diplomatic channels to open up more avenues for defence collaboration. In his two day visit to Vietnam in June, where he was accompanied by a large contingent from the industry including private players, discussions were held at Hanoi to sell the DRDO developed Varunastra 533 millimeter heavyweight torpedo that was recently inducted into the Indian Navy (IN). Capable of being fired from a domestically developed ship based launcher, Varunastra is being adapted for deployment from torpedo tubes in India's submarine fleet, including the Russian-origin Kilo class units. Once adapted, they could potentially be plonked onto Vietnam's own Kilo class boats. At the same time, India may agree to transfer the BrahMos-world's fastest short range anti ship cruise missile--to Vietnam that would result in a spurt in exports from the country. The missile that is developed jointly by India's DRDO and Russia's NPO Mashinostroeyenia and derives its name from the initial letters of India's Brahmaputra and Russia's Moskva rivers, has been sought not only by Vietnam but more than a dozen other countries including Indonesia, UAE, Chile, Malaysia, Philippines, South Africa, Thailand and Brazil. Private sector set to play ball One of the 12 agreements signed between India and Vietnam during Prime Minister Narendra Modi's visit to the country on September 3, was with L&T to build 10 fast interceptor craft for a contract worth $100 million of the $ 500 million defence line of credit offered by India to Vietnam. This follows widespread modernization efforts in the Indian defence shipyards in the last 5 years that have enhanced their capacity and productivity. L&T's Kattupalli facility has a head start in this aspect. The September 3 agreement is the first time an Indian private entity would be exporting ships to South East Asia. It is also a breakthrough moment for the Chennai based firm. Albeit a bit late, the private sector is coming to the party. The level of optimism is infectious and Parrikar's seemingly audacious $ 2 billion export target, pales in comparison. “The export potential for Indian defence manufacturers in South East Asia alone is worth $3 billion,” said Jayant D. Patil, head of aerospace and defence at L&T. Similarly, Tata Motors has supplied defence vehicles in markets including the ASEAN, SAARC and Africa and received an order from Myanmar for about 500 units last year. It also completed deliveries for 520 defence vehicles to the United Nations Multidimensional Integrated Stabilisation Mission in Mali. Tata has collaborated with SUPACAT a UK-based high mobility vehicle specialist, for technical assistance for its Light Armoured Multi-role Vehicle (LAMV) project and also has a partnership with Malaysian-based DRB-HICOM for import, distribution and assembly of Tata Motors' commercial vehicles and defence range in the country. Over the last few years, it has developed the WHAP (Wheeled Armoured Amphibious Platform) besides the LAMV and its upgrade programmes include missiles carriers, mine protected vehicles, main battle tanks and infantry combat vehicles. The company says its defence arm could potentially contribute to as much as 15 per cent from the current 3 per cent of its overall revenues and is eyeing countries in Eastern Europe, Africa, Latin America and the Asean region. “The potential is very large...10 per cent (of total revenue) is not a good number, our defence business can be much bigger than 15 per cent in the future,” said Ravindra Pisharody, executive director and head of commercial vehicle business at Tata Motors. Then there are other smaller players like Delhi-based bullet-proof equipment manufacturer MKU that is incidentally the biggest domestic defence exporter with exports worth over Rs 400 crore last fiscal, and ARI that has made a name in the world in the field of naval simulation systems. The roadblocks There are, however, significant stumbling blocks that the Indian industry needs to clear before any dreams of breaking into the top 10 defence exporting countries list can be fulfilled. The domestic industry is not at the top of the game as far as complex and cutting edge technology for warships, missiles and aircrafts that forms the bulk of defence contracts around the world, is concerned. The government itself ever so keen to press ahead with its “Make in India” theme has had to realign its ambition with this reality. In April, India scaled back a long-pending order for 126 Dassault Aviation SA Rafale warplanes, at least partly because of state run Hindustan Aeronautics Ltd was not fully equipped to make 108 of the complex jets. It forced Modi to opt for 36 Rafales from France in fly-away condition and resulted in France's Safran SA to subsequently shelve plans to make engine parts for the aircraft in India. Similarly a four decade old effort to develop a battlefield tank has yet to produce anything that can be used by the armed forces. A majority of the Arjun tanks developed by DRDO that are proudly displayed at annual Republic Day Parades through the heart of the national capital, are grounded due to various technical glitches. The Army remains reliant on customized versions of T-90 Russian battle tanks imported in the last decade. At the same time a project to produce an anti-tank guided missile has seen repeated delays, forcing India to acquire them from Russia, France and Israel. In view of such failures, the onus has quite rightly shifted to the private sector to step up and deliver. Measures to ease procedures and decision to open up the sector to 100 per cent FDI are steps to encourage companies to expand and diversify. There are other subtle steps being taken to enhance the exposure of private players to the demands of real time on the ground warfare. In July, a group of 200 representatives of defense companies -- big and small, local and foreign -- got access to India's military. At two events in Ahmednagar, the representatives got a first-hand exposure to tanks and a direct interface with troops on their equipment requirements and needs. While the more obvious intention was to educate companies on what is required by the Indian Army, hoping they would be able to supply the war heads directly and thereby reduce dependence on imports, the spin off on how it would also make them better equipped to cater to demand for arms around the world, is not lost on them. “For long we have been too secretive about our arms and ammunition. It has only meant that none of our private companies can manufacture useable state of the art ammunition,” a defence ministry official said. “We are trying to change that. It is high time private sector gets a chance considering there is so much our PSUs could not achieve for various reasons. If a Tata, Mahindra, L&T or Reliance can make weapons suitable for Indian Army, they will automatically have the capability to make weapons that can be exported around the world.” Whether that can happen in a span of two years to meet Parrikar's target, is tough to say. But at least a start has been made.

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