Originally Published The Economic Times Published on Apr 08, 2024
India’s Defence Exports: Continuing Defence Reforms is Critical

It may not be the age of war, as Narendra Modi reminded Vladimir Putin in September 2022, but a year later, India’s defence exports have witnessed a significant surge in 2023–24 with a growth of 21,083 crore. In fact, the last few financial years have witnessed steady and methodical increase in India’s defence exports to countries including the Seychelles, the Maldives, Mauritius and Ecuador.

These y-o-y increases started primarily in 2017-18, with the trajectory of defence exports hitting 4,682 crore, followed by a significant jump to 10,745 crore, which represented an increase of an impressive 129.49% in 2018-19. Then, a dip of 15.16% in defence export performance in 2019-20 to 9,115 crore was induced by the pandemic. A further decreased ensued in 2020-21 due to the continuation of Covid, by 7.47% to 8,434 crore.

The decrease in 2019-20 and 2020-21 was not as precipitous as the surge in defence export growth in the pre-pandemic phase. In the post-pandemic phase, defence exports regained their footing with an increase to 12,814 crore in 2022-23, which was higher than in the pre-pandemic year of 2018-19 when exports actually experienced a significant rise.

2023-24 has witnessed a further increase, from 15,920 crore in 2022-23 to 21,083 crore, representing an increase of 32.43%. Notwithstanding the pandemic serving as a dampener, at no stage before the last decade have Indian defence exports experienced such a steep upward trajectory.

This increase is a direct result of reformist policies instituted by the GoI. Three critical factors have enabled this growth:

  1. Importantly, less imports Reduced dependence on foreign equipment manufacturers by way of greater thrust towards tapping into the design, production and manufacturing capabilities of domestic defence PSUs.
  2. Indigenous India Private companies and startups as part of GoI’s Atmanirbhar Bharat initiative. Another critical policy is GoI’s decision to create positive indigenisation lists comprising 4,666 items that are now sourced from domestic industry. These items include line replacement units, subsystems and spares, and components.

Of the 4,666 items identified for indigenous development and production under the indigenisation list, 2,920 items or 62.5%, have already undergone indigenisation. With 75% of the acquisition budget under the capital head dedicated to sourcing from Indian companies, GoI has permitted over 40 companies and JVs with overseas original equipment manufacturers (OEMs).

Supplementing this effort is GoI’s launch of ‘Innovations for Defence Excellence’ (iDEX), geared to fostering an ecosystem that generates innovation and stimulates development of technologies through tie-ups with academia, R&D institutions, startups and industry.

  1. Def Dip GoI has engaged in an intensive level of defence diplomacy critical to defence exports. Marketing products to potential buyers form overseas also explains the export surge, coupled with lines of credit, Exim Bank financing for defence exports, and a defence offset policy that allows for integration of weapons or systems in India, which are then exported.

Further, GoI has also assiduously incorporated the role of MEA in augmenting defence exports. Essentially, enlarging the ecosystem and framework for exports- and pivoting towards a whole-of-government approach.

India’s embassies are also being roped in to promote defence exports from India, an additional fillip for dealmaking.

MEA has provided a line of credit to African countries to purchase weaponry and military platforms from India. India’s embassies are also being roped in to promote defence exports from India, an additional fillip for dealmaking.

The standout feature from the latest export data is that India’s private sector has been the source of 60% of all defence exports, with defence PSUs accounting for the remaining 40% this year. This is significant to the extent that defence PSUs in the Indian military-industrial complex tend to be privileged, in terms of defence contracts and resources by MoD and GoI.

This is why the private sector dominating the defence export pie is all the more remarkable. The 40% contribution of defence PSUs is not negligible. This also reflects the extent to which standards of products have improved making them exportable.

Yet, challenges remain. Foremost among them is bureaucratic inertia, and obstacles to genuinely integrate the private sector into India’s defence innovation and industrial ecosystem. A robust defence industrial base with a dynamic private sector that also shows a readiness to run risks to develop weapons systems is still to be fully realised.

Also, lack of sufficient budgetary allocation, and investment in defence R&D that produces reasonably competitive products for use by the Indian armed forces, as well as items that are export-worthy, remains an issue.

Once the new government takes charge in June, doubling down on defence reforms should be key to building on the present momentum in this space.

This commentary originally appeared in The Economic Times.

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Harsh V. Pant

Harsh V. Pant

Professor Harsh V. Pant is Vice President – Studies and Foreign Policy at Observer Research Foundation, New Delhi. He is a Professor of International Relations ...

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