AIR- India’s Self Reliance in Defence Sector | Current Affairs & Hindu Analysis: Daily, Weekly & Monthly - UPSC PDF Download

Export Status

The endeavor to develop and manufacture defense equipment domestically aims to decrease reliance on imports and achieve self-sufficiency. Over the past few years, the Government has implemented several policy reforms to encourage indigenous design, development, and manufacturing of defense equipment, thus fostering self-reliance in defense manufacturing and technology.

• From the fiscal year 2016-17 to 2018-19, the country's defense exports witnessed a remarkable surge, escalating from ₹1,521 crore to ₹10,745 crore, marking a monumental 700% growth.
• The value of defense item exports, encompassing major items, stood at ₹1,940.64 crore in the financial year 2014-15 and rose to ₹8,434.84 crore in 2020-21.
• India has set an ambitious goal of achieving a manufacturing turnover of $25 billion or ₹1,75,000 crore, including exports worth ₹35,000 crore in aerospace and defense goods and services by 2025.

Initiatives taken up by the government

• These initiatives prioritize the procurement of capital items from domestic sources under the Defence Acquisition Procedure (DAP)-2020, specifically the Buy Indian (IDDM) category.
• Furthermore, the government has introduced four 'Positive Indigenisation Lists' encompassing a total of 411 items of Services and three 'Positive Indigenisation Lists' consisting of 3,738 items of Defence Public Sector Undertakings (DPSUs), imposing an embargo on imports beyond specified timelines.
• The industrial licensing process has been simplified with extended validity periods, and there has been a liberalization of the Foreign Direct Investment (FDI) policy, allowing 74% FDI under the automatic route. Additionally, the Make Procedure has been streamlined, and Mission DefSpace has been launched.
• The Innovations for Defence Excellence (iDEX) scheme, involving Start-ups and Micro, Small, and Medium Enterprises (MSMEs), has been initiated. The implementation of the Public Procurement (Preference to Make in India) Order 2017 and the establishment of the SRIJAN indigenization portal to facilitate indigenous industry, including MSMEs, are notable.
• Moreover, reforms in the Offset policy, focusing on attracting investment and transferring technology for defense manufacturing through higher multipliers, and the establishment of two Defense Industrial Corridors in Uttar Pradesh and Tamil Nadu have been pivotal steps.
• A quarter of the R&D budget has been earmarked for industry-led research and development. There has been a progressive increase in the allocation of the defense budget for military modernization, emphasizing procurement from domestic sources, among other initiatives.

Necessity for Indigenous Defense Development:

• Ensuring Self-Reliance: Fostering independence in defense production to diminish reliance on foreign entities.
• Ensuring National Security: Reducing dependency on external sources to safeguard the nation's security.
• Economic Impact: Addressing Balance of Payment deficits by conserving and reducing them, while also stimulating employment opportunities and boosting exports.
• Fiscal Benefits: Lowering production costs within India to alleviate fiscal deficits. India's substantial defense spending ranked it as the world's third-largest defense spender in 2019, according to the Stockholm International Peace Research Institute (SIPRI).

Government Initiatives to Promote Defense Exports:

• Streamlined Licensing:  Simplification of defense industrial licensing procedures to facilitate smoother operations.
• Export Control Flexibility: Relaxation of export controls and the issuance of No Objection Certificates (NOCs).
• Expedited Approvals: Establishment of a committee comprising the Defence Minister, External Affairs Minister, and National Security Advisor to accelerate approvals for major defense platform exports.
• Financial Support: Extending Line of Credit (LoC) to foreign nations to facilitate their procurement of defense products.
• Diplomatic Promotion: Enhancing the role of Defense Attaches in Indian missions abroad to actively promote and facilitate defense exports.

Challenges

• Absence of a Strong Domestic Defense Manufacturing Base: The defense manufacturing sector in India lacks a robust foundation, primarily relying on Government ordnance factories with limited private involvement.
• Dominance of Public Sector: Government-led entities like DPSUs/OFs have been favored, especially in significant procurements, despite their history of time and cost overruns, inefficiencies, and financial underperformance.
• Limited Private Participation: The capital-intensive nature of the defense industry, coupled with high investment risks, restricts the involvement of private players. DPSUs have not effectively engaged with industries, including Micro, Small, and Medium Enterprises (MSMEs), to promote better business practices.
• Critical Reports: The 33rd Standing Committee on Defense criticized the government's initiatives for indigenization, highlighting issues like high costs, uncertain markets, inadequate technological transfer by foreign companies, and lack of data.
• Absence of Assessment Tools: Currently, there's no standardized system to measure the level of indigenous production achieved by defense entities in the country.
• Bureaucratic Hurdles: Bureaucratic delays and licensing complexities hinder ease of doing business in the defense industry. Investment in this sector necessitates compliance with strict licensing requirements outlined by the Department of Industrial Policy and Promotion (DIPP).

Conclusion

• Export Targets: India aims to achieve defense exports worth USD 5 billion by 2024.
• Encouraging Private Participation: There's a need to foster an environment conducive to greater involvement of private industries, supported by stable macroeconomic and political conditions and a transparent business environment fostering fair competition.
• Expedited Approvals: To accelerate major defense platform exports, a committee composed of the Defence Minister, External Affairs Minister, and National Security Advisor was established. This committee aims to facilitate faster approvals for the export of indigenous defense platforms to various countries through different available routes, including the Government-to-Government approach.