India's Defense Export Growth: An In-Depth Analysis
Suraj Kumar
Freelance SEO Content Writer | Tech & Financial Writer | B2C, B2B, D2C | Strategy Creation & Implementation | Social Media | Exploring the Field of EGovernance, Specific to India's Economic Growth
The Indian defense sector has registered a remarkable transition, primarily from being one of the largest defense product importers to emerging players in the export of critical defense platforms and equipment. In FY23, India’s defense export reached its all-time high of INR 15,920 crore (approximately US$ 1.95 billion), showcasing 10x growth since FY17, in which Indian defense export valued at INR 1,521 crore.?
According to the Ministry of Defense (MoD), India’s defense export portfolio mainly involves Akash Missiles, Dornier-228, BrahMos, Pinaka, 155mm ATAGs, thermal imagers, radars, body armors, and mine-protected vehicles. Moreover, platforms, including LCA-Tejas, Aircraft Carriers, and Light Combat Helicopters, have also gained attention in global markets.?
India exports its indigenously designed and developed defense platforms and equipment to over 85 countries worldwide, including the Philippines, Sri Lanka, France, Nepal, Bhutan, Italy, UAE, Russia, and Mauritius.?
The upsurge in the country’s defense export can be attributed to several government policies focused on fostering growth in the domestic defense industry. One of the major initiatives, implementing positive indigenization lists, has contributed significantly to propelling India towards its ambitious goal of achieving US$ 5 billion worth of defense exports by 2025.
India's foreign policy and partnership with Western countries like the United States and France have played a critical role in strengthening the country’s defense ties and collaboration for future opportunities.?
Atma Nirbharta in Indian Defense Sector
In the last few years, the Government of India has introduced several policies under its flagship “Make in India” initiative and made significant reforms to streamline and enhance the design, development, and procurement of defense platforms and equipment across the country. Owing to strategic and economic benefits, the GoI understands the importance of Atma Nirbharta in the domestic design and development of defense products.?
With the efficient coordination and collaboration between the Indian defense industry, R&D organizations, and academic institutions, the country can propel its growth towards becoming a major arms exporter in the international market and can also meet and maintain international quality standards. However, relying completely on domestic R&D initiatives and participation can restrict investment and growth opportunities. Therefore, international participation and effective collaboration with foreign players is critical.?
Last year, the MoD released two Positive Indigenization Lists, halting the import of major defense equipment with an aim to focus on their localized production. The Government of India allowed up to 74% of FDI through automatic and up to 100% by government route, encouraging Indian defense companies to develop international collaboration and manufacture high-quality, reliable defense products.
The Ministry of Defense formulated its Defense Production and Export Promotion Policy, comprising a focused and simplified approach to strengthen domestic production capabilities. The central government also confirmed the reorganization of ordnance factories to stimulate efficient and functional autonomy.
Indian Defense Export Strategy
The Directorate General of Foreign Trade (DGFT), until 2014, was required to receive no-objection certificates from the Ministry of Defense. While granting such NOCs, several factors used to be considered, including Wassenaar Arrangement Munitions List. Until then, India didn’t have its own “defense products lists,” there was also the absence of focused guidelines or a comprehensive list of items for reference to make effective decisions.?
In 2014, after a long discussion with key stakeholders and concerned departments, the Government of India identified defense items ready for experts in international markets and developed adequate guidelines for issuing export licenses. The final list was accepted by the MoD and officially announced by the Department of Industrial Policy and Promotion under the Ministry of Commerce and Industry.?
From then to now, the Indian government has taken critical initiatives to boost domestic production of defense items and enable local players to strengthen their position on the global stage.?
Key Drivers of India’s Defense Export Growth
In the upsurge of Indian defense exports, many factors are involved, including setting up the Export Promotion Council and launching the India Defense Mart.?
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1. India Defence Mart
The government of India has been constantly taking action to simplify and streamline the export procedures for defense sectors, making it easier for companies to export their defense equipment and technologies to international markets. In a series of these reforms, the union government launched India Defence Mart, an online portal helping companies apply for export licenses and keep track of their application status. Domestic players in the defense sector can easily obtain no-objection certifications (NOCs) from various government agencies, which they require during defense product exports.?
2. Export Promotion Council
Alongside the Make in India campaign, the union government established the Export Promotion Council, which primarily engages in the promotion of defense exports. It also aims to reduce the country’s dependence on defense imports and foster innovation in the design, development, and production of defense equipment in both the public and private sectors. The EPC is pivotal in ensuring improved fundraising, regulation, production monitoring, and the entire defense export process without breaching the country's national security measures and strategic goals.?
3. Scheme for Promotion of Defense Exports
The Indian government launched a Scheme for the Promotion of Defense Exports, providing financial support to Indian defense companies for attending international defense exhibitions, marketing, and publicity, which significantly boost the export of indigenously developed and manufactured defense equipment and platforms. The government has also introduced Technology Upgradation Fund Scheme, also known as TUFS, to modernize India’s defense industry. Domestic organizations in defense sectors can avail of financial assistance for upgrading and modernizing their manufacturing facilities in order to remain efficient and competitive.?
4. Defense Offset Policy
GoI’s Defense Offset Policy aims to provide additional benefits to the buyer of products from foreign suppliers. Foreign OEMs winning a contract of over Rs 2,000 crore will now be required to invest at least 30% of the entire contract value in the domestic companies as an offset. They can make it happen either in the form of additional work contracts or the transfer of critical technology. Previously, the threshold limit for offset implementation was Rs 300, which has now increased to Rs 2,000 crore. The contracts below Rs 2,000 crore will not be required to fulfill the offset obligation.
Indian Defense Export: Past Data & Future Projections
In Mega Aero India 2023, held in February 2023, Hon’ble PM Narendra Modi reaffirmed the country’s remarkable growth in defense export and its journey towards achieving the US$ 5 billion export figure target by FY25.?
In FY223, the country achieved its all-time high defense export of US$ 1.95 billion, US$ 1.5 billion in FY22. With around 100 firms exporting defense products to over 85 countries worldwide, India has shown its design and development capabilities in the defense industry, continuously strengthening its position towards becoming self-sufficient and capable of exporting defense products in global markets.?
The central government launched three Open General Export Licenses (OGEL) for the export of Parts and Components/ Transfer of Technology/ Major Platforms and Equipments. With this one-time export license, domestic defense companies can export mentioned arms items to named countries without requiring permission from concerned authorities until the validity of the export OGEL.?
Wrapping up
The global defense platforms and equipment market is fiercely competitive, where major players, including USA, Russia, China, France, and Germany, lead the market and collectively hold 77% of global arms exports. India, which is still absent from the list of top 25 defense export countries, has to continue taking strategic and critical initiatives to boost the domestic defense industry and make it capable of competing on the global stage.?
However, in recent years, the Government of India has continuously focused on the “Make in India” campaign and introduced flagship schemes, and taken innovative decisions like the launch of the India Defence Mart and Export Promotion Council. As India continues to focus on its indigenous design, development, and manufacturing of defense platforms and equipment, it's poised to become a major player in the global defense market.?