To break into the global defence market, India will need to invest in both R&D and marketing
Cdr S Shrikumar (retd)
In an article titled ‘The Right Approach’, published in the August 2024 issue of FORCE, I had proposed a blueprint to make ‘Make in India’ for defence succeed. The article examined the barriers that have repeatedly frustrated efforts by India and its defence manufacturers to begin making in India and realise their long-cherished goal of becoming self-reliant in defence equipment.
The blueprint hypothesised that the barriers to making in India that confront Indian defence manufacturers, are similar to the barriers automakers faced in the post-World War II Japan of the 1950s and 1960s. Japan, in the 1950s and 60s, was trying to break into the global automobile market, dominated, at the time, by American and European firms. Japan, which in 1953 was manufacturing just 10,000 cars per year went on to, in 1980, overtake the US and become the leading car manufacturing nation in the world.
The strategy employed by the Japanese automakers to dominate the US car market, was later successfully replicated by South Korean automobile and electronics manufacturers. Samsung, Hyundai, Kia, and LG successfully adopted the strategy employed by the Japanese automakers to themselves become dominant players in their respective industries.
The blueprint for making-in-India for defence, recommended leveraging existing enabling factors such as India’s large pool of technical talent, a large domestic market comprising military/ paramilitary forces dependent on imports to fulfil their equipment needs, the availability of multiple domestic defence firms (public and private) to engender competitiveness, no natural resource bounty to distort the economy and business incentives, a restive regional/ global geo-political environment requiring the highest levels of defence preparedness, and a pressing strategic imperative to attain self-reliance in defence. The blueprint also posited that greater investments in defence R&D, developing indigenous design and development capability, and calibrated state support were pre-requisites for the success of the make in India for defence initiative.
The Salience of Arms Exports
However, investments in building indigenous defence manufacturing capabilities are capital intensive and only provide returns in the long term. Also, such investments are viable only when together with catering to domestic demand, exports, which provide economies of scale are also pursued vigorously.
A policy document, ‘Strategy for Defence Exports’, available on the department of defence production’s (DDP) website, recognises the salience of defence exports and highlights that, ‘the policy of maximising indigenous production without well supported R&D policy and export strategy may not bring desired results. Therefore, the defence industrial policy has to be supplemented by the strategy for defence exports without which the economic base of the defence industry would be difficult to sustain in the present economic competitive environment.’
The policy document additionally highlights that ‘though India has made rapid strides in defence technology and industrial base in the recent past, it is yet to cover a significant ground in terms of new products development and scale of production. The domestic defence industry would have limited scope for investment in R&D and production if it relies only on the domestic demand.’
Today’s leading armament exporting nations have a long, established history and track record of arms manufacture and supply, that at least in the modern era, can be traced back to WW I. Globally, India does not enjoy a favourable reputation for either high-quality engineering, modern manufacturing, or product reliability. Academic research has conclusively established that an equipment’s country of origin evokes strong customer reactions. Such perceptions produce either a positive or a reverse halo effect on the sale of all categories of equipment (including armament) made in these countries.
The perception linked to the country of origin comprises six dimensions—quality, innovativeness, aesthetics, prestige, price/ value & social responsibility. Few countries rate favourably on all six dimensions. Germany comes closest, even though it does not rate high on price (it does not need to rate high on price given its strengths in all the other dimensions). India rates low on all the dimensions except on price. However, poor quality will mean low value for money and, hence, low price alone will not help India sell its products—especially arms.
India will need to overcome the unfavourable country-of-origin perception to be able to export India-made armament and compete with established rivals. Persuading prospective customers to change strongly held unfavourable perceptions is difficult. It will be doubly difficult in the case of arms purchases—seen as being critical for the defence of the nation, besides being high-cost purchases. In such a situation, a focused strategy is required to change the existing negative perception of Indian industry by providing tangible evidence of technical prowess. This is only possible by the speedy field deployment of indigenously developed and manufactured arms that are globally competitive on technology, quality, performance, and value.
Export Ambitions
In such a scenario, how realistic are India’s defence export ambitions? India has no credible track record of arms development, manufacture, or export. According to data available on the MoD/DDP website, the value of export by DPSUs, OFs, and private defence industry for the financial year 2024-25 (as on 17 September 2024) is a paltry Rs 9701.39 crores or approximately USD 1,183 million (for comparison, a single Krivak class frigate ordered from Russia in 2016 cost India USD 1120 million; total deal was for USD 4.48 billion for four frigates). The DDP has set itself a target of increasing arms exports to Rs 35,000 crores (USD 5,300 million) by 2025. This would mean that during 2020-25, arms exports need to grow at a CAGR of nearly 40 per cent to reach Rs 35,000 crore. It seems extremely unlikely that this target will be reached.
If India’s defence industrial complex is to achieve the targeted arms exports, it would first need to design and develop arms that are accepted for induction by its own armed forces. Customers rely on ‘cues’ that reveal the qualities of the product. The most important cue in arms purchases is the proven, successful record of their use by the exporting country’s own armed forces. Domestically produced equipment suffer from a large number of quality issues. The Indian Army has repeatedly rejected an Indian-made rifle after it reportedly failed quality tests. Indigenously developed critical equipment like the Arjun tanks, the light combat aircraft, and even bullet-proof jackets often cannot be used because of performance issues.
Currently, in India, it takes decades to complete the ‘initial design-to prototype-to final production’ cycle. Consequently, most of the equipment developed, often contain outdated & sometimes obsolete technologies at the equipment induction stage itself. To be able to target the export market the ‘design to production cycle’ needs to be shortened and brought on par with global standards.
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