The supply chain disruptions caused by Covid-19, Russia Ukraine war and hyper geo-political tensions have forced countries to reconsider their foreign trade priorities and policies. During these global uncertainties and turbulences, the (in)dependent world has witnessed the cruellest weaponization of weapons which raised the significance of self-reliance, especially in critical sectors like defence.
For India, defence products procurement order agreements have always remained a point of contentious. Since independence, India has been a prominent importer of defence products from foreign countries. It continued to rely on major economic powers (mainly Russia) for its defence requirements. India has already paid a heavy price for such reliance in the 1960s and 1990s. However, the post-liberalization phase witnessed increased capital allocation for the Indian defence sector. Subsequently, in the last 10 years, New Delhi has successfully adopted a slew of measures to enhance defence capabilities domestically.
Why Defence Indigenization is important?
Economic Perspective
India is a country sharing borders with hostile neighbours, hence vulnerable, so requires on-the-go high-tech defence capabilities. With a very limited domestic focus on R&D and stringent government policies for the defence sector, India had to remain dependent on their counterparts. India had to negotiate with foreign players to get cut-edge resources for the defence forces. Consequently, India stands on top in terms of defence products imported from the world. Such a huge volume of imports leads to the depletion of foreign exchange reserves, severally impacts the trade balance and has a direct influence on future trade policies.
Domestic designing, manufacturing, maintenance and institutionalization of defence products can generate a sizeable number of job opportunities for the population. A recent study by the University of Tawai shows that a 20 percent reduction in imports could directly create an additional 1 lakh highly skilled jobs in India. As defence is a propulsive industry, it stimulates value creation with other industries such as steel, iron, cement, automobiles, drone, innovation etc. Efficient management of these linkages will have a multiplier effect on the economy and has long-term economic implications for the national security and prosperity of the economy.
Security implications
India, as a country surrounded by hostile neighbours and dependence on defence products from foreign countries, has already caused irrecoverable damages to the Indian territorial integrity. The over-dependence of defence items on foreign countries put India at the peril of vulnerability. As a result, many times India’s foreign policy has to face strategic constraints. Therefore, it becomes imperative to ensure domestic designing, production, marketing and repairing of defence equipment to meet any unforeseen situations and uphold the national interest.
A country which is striving to emerge as a global power on the map cannot afford such painful dependence on its national security and sovereignty. The recent episodes in US, Russia and Israel have again reiterated India to re-evaluate its defence imports. As a result, India was compelled to step up its defence strategy to strengthen its dynamic demands. Nevertheless, India has made promising progress in equipping its defence forces domestically. As India is a strong player in Global South, it is required to establish itself as a deterrent.
Current status
To meet the rising global challenges, New Delhi has adopted a slew of public policies to make India Atmanirbhar in the defence sector. The union budget has also focused on India the indigenisation of defence capabilities. Through subsequent defence aggressive policies, the government has stimulated private participation, opened the automatic route for FDI (up to 74%), diversified manufacturing, established a dedicated defence corridor in UP and Tamil Nadu and strengthened its supply chain. Due to these unprecedented efforts, India’s defence manufacturing has achieved the milestone of significantly reducing its defence imports and started to export defence products. In the fiscal year 2022-23, India exported defence equipment of Rs.15,920 crore to more than 85 countries. It is nearly 10 times the figures for 2016-17. The government has aimed to export defence products of Rs. 35,000 crore by 2025.
Although India still has a high defence import bill, the clarion call of Make-in-India and Atmanirbhar Bharat has surely shown tremendous domestic potential to pave the path of success for New India.
Vipin Vihari Ram Tripathi
Chief Adviser
Finance & Economics Think Council