By Saurav Jha
Can India reach its ambitious target of exporting $2 billion in defense technology per year?
Long among the world’s top importers of weapons, India now wants to turn
its military related trade into a two-way affair by enhancing defense exports
from its soil. This new emphasis on exporting military wares has yielded early
results with Indian defense exports doubling over the course of the past year
to about $330 million. India’s defense minister Manohar Parrikar, however, has
set his sights higher and wants annual military exports to touch $2 billion in
a couple of years.
While the initial growth in sales has been driven by exports
of military stores due to the removal of excessive controls, reaching
Parrikar’s target would require Indian diplomacy to re-orient itself toward
securing weapons contracts for major indigenously-developed systems under the
aegis of the government’s “Strategy for Defense Exports” (SDE). SDE, which is
overseen by the Department of Defense Production (DDP) in India’s Ministry of
Defense (MoD) is intended to boost Prime Minister Narendra Modi’s “Make in
India” scheme while consolidating Indian influence abroad.
In the initial phase, India’s defense sales effort is
likely to concentrate on homegrown missile and naval systems, which have high
indigenous content in terms of components. Of course, India will also
progressively leverage the various international collaborations it has built up
through years of co-production and co-development as it joins global export
control regimes such
as the Missile Technology Control Regime (MTCR). While India will try to export certain classes
of tactical systems as widely as possible, weapons with greater strategic
import will obviously be offered to select partners. Overall, India is likely
to focus on a few key defense partners with which it has maximum strategic
congruence for building up its position in the global defense market.
In keeping with that objective, Parrikar was
accompanied by a large industry delegation comprising representatives from
India’s main arms manufacturers during his visit to Vietnam in June. Military
industrial ties were believed to be high on the agenda during Parrikar’s
interaction with his Vietnamese counterpart, General Ngo Xuan Lich. On the
sidelines of the visit, Parrikar stated that “India’s help in modernizing the
Vietnamese military will not just strengthen the diplomatic and military bond
between both the nations but also open the doors of strategic exports.”
Indeed, not only is India set to take a final decision on how it might
transfer the BrahMos to Vietnam, it has begun discussions with Hanoi to sell
the Defense Research and Development Organization (DRDO) developed Varunastra
533 millimeter heavyweight torpedo that was recently inducted into the Indian
Navy (IN). Currently capable of being fired from a domestically developed ship
based launcher, Varunastra is also being adapted for deployment from torpedo
tubes sported by India’s submarine fleet, including the Russian-origin Kilo class units. So besides potentially
equipping Vietnamese surface vessels, the Varunastra may also someday find its
way onto Vietnam’s own Kilo class boats, especially given India’s
involvement in training Vietnamese submariners.
As per India’s training and military cooperation
agreements with Vietnam, it must also assist the latter in maintaining and
upgrading equipment of Russian origin that is common to the militaries of both
countries. Accordingly, Indian industry is looking to partner with Vietnamese
firms to augment military platforms with weapons and sensors that Vietnam may
not be able to affordably source from elsewhere. For example, India is
reportedly set to upgrade two Soviet-era Petya-class frigates of the
Vietnamese Navy with new sonar and torpedo launchers, a new fire control
system, and a new antisubmarine rocket launcher system. Incidentally,Petya class boats can
easily be equipped with 21 inch/533 mm torpedo launchers. And there is a strong
possibility that initial Varunastra sales to Vietnam may form a part of this
upgrade package. Other systems of Soviet origin in the Vietnamese military that
have been identified for upgrades in collaboration with India include T-54/55
main battle tanks and BMP family infantry fighting vehicles, all which will
receive new thermal sights and fire control systems. New Indian software
defined radios are also likely to be purchased by Vietnam to upgrade both
infantry and armored units.
Domestic modernization programs of both Russian as
well as Western origin systems have given Indian industry a lot of experience
in the arena of integrating equipment from diverse sources with different
industry standards. This in turn has allowed Indian industry to emerge as a
supplier of sensor and navigation upgrade packages for platforms of diverse
origin besides being able to offer standard spares and maintenance services for
the same. These capabilities are now getting reflected in the growth in exports
that has taken place of late. For instance, last year India exported select
avionics for Malaysia’s Su-30 MKM fighters, which are similar to India’s own
Su-30 MKIs, and the two countries agreed to set up a “Su-30 forum” last
November for exchanging information on training, maintenance, and technical
support. With India beginning to train Vietnamese pilots for their own Su-30
MKV2s, one can expect similar exports to Vietnam too in the future.
Indian exports in the recent past have included light
helicopters to Afghanistan, Nepal, and Namibia, DRDO developed HMS-X2 sonars to
Myanmar (the same sonar likely to feature in Vietnam’s Petya class
upgrade), 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. A significant driver of this
growth has been the simplification and streamlining of the DDP’s standard
operating procedure for the issuance of no objection certificates (NOC) related
to exports of military stores by domestic companies.
One other particularly noteworthy export has been that
of the 1,300-ton offshore patrol vessel (OPV) MCGSBarracuda to
Mauritius in December 2014. Built by DDP-controlled Garden Reach Shipbuilders
& Engineers (GRSE) for $50.8 million, the Barracuda is India’s first ever export of a home
built warship. Besides theBarracuda, India’s 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. India
has supplied Sri Lanka and other Indian Ocean Region (IOR) countries with
refurbished boats in the past, but is now looking to export new OPVs,
interceptor craft, corvettes, and frigates to littoral states in the region. As
per an Indian naval official, most countries in the IOR littoral seek “sub-20
meter boats for harbor patrol, 50-60 meter boats for their territorial waters,
and 80-110 meter boats for their EEZ surveillance.”
East African countries such as Mozambique have
certainly been looking
toward India to help
build their coastal fleets for a while and India may now finally be in a
position to deliver. This is underlined by the fact that Indian defense
shipyards have enhanced their capacity and productivity via recent
modernization efforts and are now in a position to compete for foreign orders.
GRSE has actually emerged as the lowest bidder for a two-frigate tender floated
by the Philippines Navy (PN). However, even as defense shipyards have augmented
themselves, some very modern private shipyards like Indian defense major
L&T’s Kattupalli facility, which have been designed to build warships, are
underutilized at the moment. As such, L&T is set to supply 10 fast
interceptor craft of a type that it is already producing for the Indian Coast
Guard to Vietnam for a contract worth about $90 million. This is being
facilitated by the $100 million credit line extended to Vietnam by India for
the purchase of critical defense equipment. During his visit to Vietnam,
Parrikar reportedly assured the Indian private sector of the full support his
ministry, DRDO, and public sector defense units to “realize the national
aspiration of exports of defense items to friendly nations at competitive
price.”
Spare capacity is certainly going to be a key
consideration in arriving at a decision to actually export any
indigenously-developed system. As Parrikar himself recently stated, “The
government had taken a very conscious decision about 4-5 months ago that 10
percent of the missile capacity will be permitted to be exported if producers
manage to get export orders subject to parameters set by the Union Government
and External Affairs Ministry.” In that light, the Indian government’s desire
to push for sales of the Akash surface-to-air missile (SAM) system hold
credibility, since annual production numbers for the missile is now in the high
hundreds due to sizable orders from both the Indian Air Force (IAF) and Army.
Potential customers for the Akash would include Vietnam, other ASEAN states,
and a few customers in Africa. A smaller group from the same set of countries
would also be offered the Pragati surface-to-surface missile with a range of
150 kilometers, the export version of the Prahaar, which resumed testing
recently. The Pragati/Prahaar shares a common airframe and some avionics with
India’s endo-atmospheric ballistic missile interceptor, Advanced Air Defense
(AAD), creating possibilities for driving down costs through greater economies
of scale. Another missile that is at the cusp of production and has been
earmarked for export sales is the Astra beyond visual range air-to-air missile,
which is compatible with the Su-27/30 family.
SDE notes that “the objective of (India’s) Defense
Production Policy will not be achievable without having a well thought out
export strategy, so that the industry is assured of access to export markets in
addition to domestic market for investing in the sector.” However, in the
initial years it will actually be capacity that will drive exports and not the
other way around. Be that as it may, India seems cognizant that the successful
export of military systems is contingent upon factors other than cost or
project delivery. While it has chosen not to create a separate defense policy,
it has moved to institutionalize the SDE under the rubric of the Ministry of
Commerce’s (MoC) overall foreign trade policy thereby underlining the
geoeconomic motivations behind India’s defense export drive.
A Defense Exports Steering Committee (DESC) headed by
the secretary of DDP has been set up, with representatives from the Military,
MoC, MEA, and occasionally even industry and academia for deliberating and
taking decisions on the export of indigenously-developed “sensitive defense
equipment” and to suggest specific steps that can boost exports. SDE calls for
the use of “specific incentives and promotion schemes” to promote defense
exports wherever possible. The need to provide soft financing for Indian
defense exports to weaker countries has been clearly noted and MoC’s “Buyer’s
Credit” facility is also expected to be leveraged. This assumes significance in
light of the fact that Indian private companies face stiff competition from
their Chinese counterparts in many emerging markets on account of the higher
cost of capital in India.
Now even as India brings various stakeholders together
in committee mode, the need to develop proficiency on defense industrial issues
in India’s Ministry of External Affairs (MEA) cannot be understated. SDE
expects Indian embassies abroad to understand the requirements of their host
countries and it is the MEA that actually controls the extension of line of
credit to other countries. It also decides a “negative list” of countries to
which most defense exports will be prohibited. Unfortunately, at the moment,
the MEA is rather understaffed and needs to pay more attention to countries
that are most likely to be markets for Indian defense exports. The MEA will
also need to build a cadre of specialists focused on defense matters, something
that is lacking at the moment.
India’s military, meanwhile, will have to up the ante
on its own diplomatic initiatives. The Indian Navy (IN) has taken a lead in
this arena and has been instrumental in securing warship exports in the IOR
through the understanding it has built up with the countries in the region.
Moreover, IN’s focus on indigenization has been central to creating the
capacity for export as is evidenced above. Indeed, while Sri Lanka and Egypt
may want to import the HAL Tejas, it remains to be seen whether that can happen
anytime soon given current production capacity, which is based on modest IAF
orders. In any case, weapons used by a domestic military usually find favor
more easily abroad.
An early test for India’s diplomatic ability to secure
military orders has, however, already presented itself. Though GRSE emerged as
the lowest bidder and scored high on technical criteria during standard
post-qualifications inspections by officials from Manila, its bid for the
frigate supply tender valued at $437 million nevertheless stands
disqualified at the moment on financial grounds. GRSE apparently does not
fulfill the net financial contracting capacity criteria used by the Philippines
Government to assess the financial capacity of a contractor to make good on
delivery. This is due to the fact that Philippines will not make tranche
payments for these frigates and GRSE’s current turnover is deemed as
insufficient.
However, it must be said that GRSE currently has
several ships on order from the Indian Navy including large stealth frigates
and in any case has an implicit sovereign guarantee given that it is a defense
shipyard. This point will need to be adequately conveyed through diplomatic
channels and IN will have to do its bit to persuade its PN counterparts as
well.
While incentives may be used to push Indian defense
exports in several categories, there are certain weapons which are widely
sought after chiefly on capability grounds by foreign nations. The BrahMos is
of course a stand out example, with apparently 15 countries including Vietnam,
Indonesia, UAE, Chile, Malaysia, the Philippines, South Africa, Algeria,
Greece, Thailand, Egypt, Singapore, Venezuela, Brazil, and even Bulgaria
reportedly expressing interest. However, systems such as the BrahMos, though
MTCR compliant, will be sold on the basis of a balance of interests. Vietnam,
with its key position in the South China Sea theater and its closeness to
Russia, the United States, and Japan is an obvious choice, especially since
some in India see it as “our Pakistan.” There have been reports that the UAE is
also very keen for the BrahMos and that a decision is expected soon, but one
should remain skeptical about this given India’s ambitions in Iran. India will
likely be even more judicious about the air-launched BrahMos once that enters
production since all ASEAN Su-27/30 operators may be eyeing it. But then, that
is a story for another day.
Saurav Jha is a commentator on energy and security
affairs. Follow him on Twitter @SJha1618.
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