Defence Industries: How Successful Is 'Make In India'?

That many of the projects have huge government-to-government components makes it even more opaque since the sensitivities of various foreign governments must also be respected.

The question arises since the Make in India initiative when it comes to meeting the overall stated targets, has fallen short.

Under this programme, the share of manufacturing in GDP was projected to reach 25 per cent by 2022. However, the GDP share of manufacturing has fallen from 16.7 per cent in 2013-2014 to 15.9 per cent in 2023-2024. The moot point is how much of the shortfall is due to the defence sector.

When you look for an answer, you realise that the achievement is measured in terms of defence exports that have risen phenomenally as our exports were minimal to start with.

Assessing Achievements

However, the achievement in terms of import substitution and whether the Services and the overall defence sector consumer have been able to save hard currency becomes difficult to assess as both, the users’ requirements, their priorities and what percentage of manufacturing occurs here remains in a state of constant change and adaptation.

The official claim as per a PIB release in October 2024 is that as part of the Make in India initiative, major defence platforms such as the Dhanush Artillery Gun System, Advanced Towed Artillery Gun System (ATAGS), Main Battle Tank (MBT) Arjun, Light Combat Aircraft (LCA) Tejas, submarines, frigates, corvettes, and the recently commissioned INS Vikrant have been developed.

Consequently, the annual defence production “has not only crossed Rs 1.27 lakh crore but is also on track to reach a target of Rs 1.75 lakh crore in the current fiscal year. With aspirations to achieve Rs 3 lakh crore in defence production by 2029, India is solidifying its position as a global manufacturing hub for defence.”

The government asserts that achievement under this programme began in 2014, soon after the government headed by Prime Minister Narendra Modi took office, reflecting a transformative shift from reliance on imports to becoming a self-sufficient manufacturing hub.”

It says that with the record achievements in domestic production and exports “India is poised to not only meet its own security needs but also emerge as a key player in the global arms market.”

Exports & Imports Both Up

However, India’s arms exports for 2023-24 reached Rs 21,080  crore ($2.5 billion), a 32.5 per cent increase over the Rs 15,900 billion rupees in FY 2022-23, according to official data. In 2021, Stockholm International Peace Research International (SIPRI) ranked India 23rd among the world’s top 25 arms exporters, boosting ambitions to cut foreign reliance and strengthen the domestic arms industry.

However, despite export growth, India slipped out of SIPRI’s top 25 exporters list in the next two years - 2022 and 2023. But at the same time, it remained the world’s largest arms importer, accounting for 9.8 per cent of global imports between 2019 and 2023, with imports increasing by 4.7 per cent compared to 2014-18.

SIPRI’s latest report highlights rising defence imports and expanding partnerships, revealing challenges in reducing foreign dependence.

Another point that emerges is that from the US to Russia and France to Israel, all major suppliers/collaborators support the concept of “Make in India” since many of them have similar programmes aiming to cut costs and exchange technology.

It is also seen as a suitable approach to sell their wares, technology, and know-how to an India that has a large defence requirement and also has a huge defence production base built over the last 60 years and more.

Also, these are not merely oases of defence/industrial activities but are also supported by a large pool of scientists, technologists and managers trained at the IITs and IIMs, besides top-notch universities.

However, despite the government liberalising foreign direct investment in defence, India has attracted a mere Rs 5,077 crore in FDI between 2001 and 2024. 

Government-To-Government Business Is Faster

Going into specific projects and the nations involved, it is apparent that government-to-government talks that also involve government-controlled industrial entities can move faster into the “Make in India” ambit.

This is where Russia, a traditional collaborator that has known the Indian system well, retains an advantage, long after the end of the “Bhai Bhai” era of the 1970s, over its Western competitors.

Among the latter, the US has numerous laws and directives that control and drive the export of weapons, systems and technology transfer. The government is the ultimate arbiter when it comes to giant multinational manufacturers and suppliers.

What has been achieved since the turn of this century, and finds its way into the “Make in India” is the support of successive American administrations and on the Indian side, willingness to open up its hitherto moribund defence public sector and change in the industrial policy that opens the defence sector to private sector.

India has ensured collaboration between foreign governments and the defence MNCs and the Indian private entrepreneurs like the Tatas, Reliance, Larsen & Toubro, Mahindra, Godrej, Adani and more, some of them MNCs in their own right. India has also brought in DPSUs like the Hindustan Aeronautics Limited (HAL) to collaborate with their foreign counterparts.  

The shares of some of these DPSUs on the stock exchanges are bought and sold at a premium. This indicates not only the policy's success in letting them float in a competitive arena of industry and technology but also benefits the “Make in India” initiative.  

Tripling Defence Output

An enthused India now targets to triple defence production by 2028-29 and double its defence exports to Rs 50,000 crores. In less than a decade, India has substantially, though not overwhelmingly, indigenised its defence production but has also turned into an arms exporter.

Contributing to this success story is the role of the DPSUs that were earlier considered inefficient, loss-making, manpower-guzzling behemoths that badly needed fresh technological thrust.

All these entities have their research divisions and startups. These are manufacturing items ranging from tanks, ballistic missiles such as Brahmos, fighter jets, artillery shells and night-vision devices.

Under the Atmanirbhar Bharat Initiative, five positive indigenisation lists of 509 products have been promulgated by the Department of Military Affairs and Ministry of Defence to be manufactured domestically for the defence sector, instead of being sourced via imports.

Where Do MSMEs Stand?

There are some 8,643 Micro, Small, and Medium Enterprises (MSMEs) including start-ups contributing to defence manufacturing mostly as vendors. The government has also launched an 'Innovations for Defence Excellence' (iDEX) to bring start-ups and MSMEs to innovate, develop technologies and solve problems related to defence and aerospace aimed at the creation of an ecosystem to foster innovation and technology development in Defence and Aerospace.

The problems faced by MSMEs are well known and include, but are not limited to, capital flow challenges, lack of proper infrastructure, R&D linkages, access to business connections, and acquisition of niche capabilities.

What Can Be Done:

1) Expansion of loan support to MSMEs. A funding programme for SMEs could be part of the Defence Acquisition Programme itself as it is in South Korea.

2) Similarly, to address R&D needs, the Ministry of Defence and its DRDO or research wing could license and involve MSMEs in manufacturing some of the defence technologies it develops to give them a boost.

3) Exports by MSMEs can piggyback on the Indian government to government defence exports where ancillary and components manufactured by MSMEs will get priority in any export package negotiated.

4) At the same time, it is the bounden duty of industry bodies to help MSMEs identify points of engagement within the defence supply chain.

5) Identify challenges faced by MSMEs in the defence supply chain through feedback from defence MSME forums, trade associations and surveys.

6) There is also a need for negotiating barriers to entry to improve access to opportunities for MSMEs by handholding them and opening up supply chains by both the trade bodies and the government.

7) There is also a need to identify and fund innovative approaches in defence through a suitable Defence And Security Accelerator (DASA) and the innovation hubs as is being done by the UK.

8) A Mentor-Mentee program for MSMEs in the defence sector can be established, with the Ministry of Defence facilitating mentor-mentee relationships and providing support to ensure the program's effectiveness.

Conclusion

With an estimated US$138 billion in potential defence orders over the next decade, further promotion and strengthening of both the overall defence industrial complex and its MSME segment will be an essential pre-requisite for India being able to live up to its goal of being self-reliant and global leader in the business of defence manufacturing.