Single agency being set up to process defence exports

Rajnath Singh's defence ministry has been talking up the need for increasing defence exports

By Ajai Shukla

Business Standard, 16th Oct 19

In a new initiative to boost the export of Indian defence products, army chief, General Bipin Rawat will on Friday launch the Indigenous Defence Equipment Exporters Association (IDEEA) in New Delhi.

IDEEA is conceived as a non-profit association, set up under Section 8 of the Companies Act. It has the stated objective of making India “one of the top three defence equipment exporters in the world.” 

The association will effectively be a nodal agency for receiving and processing export inquiries from all prospective customers across the globe. Its director, Major General Prem Mohan Vats (Retired) says: “IDEEA will provide a platform for defence exporters, particularly MSMEs (micro, small and medium enterprises), to air their concerns and to reach customers.”

Sanjay Jaju, the defence ministry official who interfaces with industry,had announced in June the creation of a Defence Export-Import Portal, that “will post export opportunity leads that our sources have obtained, which exporters can follow up and translate into business.” IDEEA, it appears, is intended to meet the same purpose promise.

IDEEA is directed towards achieving the defence ministry’s ambitious aim, stated in the Defence Production Policy of 2018 (DPrP-2018), of exporting defence products worth of $5 billion (Rs 35,000 crore) annually, by 2025. 

Given that defence exports were Rs 11,000 crore in 2018-19, achieving this target requires defence exports to more than triple in six years. The 2018-19 export figure was itself a more than two-fold jump over the preceding year’s exports worth Rs 4,682 crore, according to the defence ministry website.

The ministry assesses that enhanced exports would be essential for meeting the DPrP-2018 target of making India one of the world’s top five defence producers, with an annual defence production turnover target of US $26 billion (Rs 180,000 crore).

India’s current defence production is Rs 90,000 crore per year, says Jaju. Export markets would be crucial for absorbing production levels that are double of this, given that the defence capital allocation is currently Rs 108,248 crore.

The defence ministry has moved gradually towards creating an enabling environment for exports. The first step was to loosen barriers by gaining Indian entry into the four global export control regimes. India has already obtained membership of the Missile Technology Control Regime, the Wassenaar Arrangement and the Australia Group. New Delhi is now lobbying for entry into the fourth – the Nuclear Suppliers Group.

Meanwhile, as an export promotion measure, the government has steadily increased the levels of foreign direct investment (FDI) permitted in defence. If this continues, foreign defence firms might soon be allowed a majority stake in joint ventures (JVs) they set up in India.

In 2016, the prevailing 26 per cent FDI cap in defence manufacturing was raised to 49 per cent through the automatic route. Additionally, FDI above 49 per cent was permitted through case-by-case government sanction “wherever it is likely to result in access to modern technology or for other reasons to be recorded.”

So far, this has failed to spur foreign investment. The defence sector has received FDI worth just $ 0.18 million (Rs 1.26 crore) from April 2014 to December 2017, the defence ministry told Parliament on March 7, 2018.

The biggest recipient of Indian defence exports is currently the US, which has imported nearly Rs 5,000 crore worth of equipment. Next comes Israel, and then the European Union.