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There is an element of ‘whodunnit’ to recent Ministry of Defence (MoD) claims that India’s defence exports had rocketed to Rs 13,000 crore in financial year (FY) 2021-22, constituting a 55% increase over the preceding year.
Announcing this feat, a defence ministry official also revealed that 70% of these exports were from the private sector, but did not give any details of the items sold overseas. The cryptic information provided by him was too sketchy for any definitive conclusions to be drawn regarding the actual growth in India’s defence exports and the prospects in the coming years.
In fact, a closer analysis of the available data further deepens the plot.
In late March 2022, junior defence minister Ajay Bhatt informed parliament that the overall value of Indian defence exports till March 21, 2022 was Rs 11,607 crore. It is astonishing, to say the least, that exports jumped in the remaining 10 days of March by Rs 1,397 crore. This amount exceeded the monthly average value of defence exports during FY 2021-22 and, for that matter, any of the previous seven years, FY 2014-15 onwards.
This, however, was not the first time that the MoD had made such seemingly exaggerated claims, which remained unsubstantiated.
A similar phenomenon was witnessed between FY 2016-17 and FY 2018-19 when the value of exports abruptly jumped from Rs 1,521.91 crore to Rs 4,682.73 crore, and then further to Rs 10,745.77 crore. At the time, no explanations were forthcoming, except for an anodyne one-line statement in the MoD’s Annual Report that over a dozen reforms had been executed during FY 2018-19 which, in turn, had provided a fillip to exports.
The tabulation of this export data, too, remains enigmatic. Reports indicate that the overall value of exported materiel projected by the MoD is the aggregate of the value of ‘authorisations’ issued, and the contracts signed. Evidently, the calculations are not based on the invoice value of the products or items exported during the year. In the normal course, the actual value of defence exports can only be determined by money either received or owed by overseas importers.
Jumbling together the value of export authorisations, which may or may not result in an eventual sale, contracts against which payments are spread over extended periods, and money actually received by the exporters in a year, maybe deft accounting – but it only obfuscates the real picture.
To further complicate matters, the MoD also included the value of equipment and platforms gifted to ‘friendly countries’ under grants-in-aid, in the overall value of exports.
Media reports have indicated that the Rs 13,000 crore earnings from defence exports included the Rs 2,770 crore sale to the Philippines of two BrahMos cruise missile batteries, or six mobile autonomous launchers, which many defence analysts believe may be in jeopardy, following the accidental firing in March of a BrahMos missile by the Indian Air Force from one of its bases in northwest India that infiltrated deep inside Pakistani territory, before harmlessly impacting a wall in a small township in Punjab province.
A court of inquiry was ordered into the incident, the outcome of which remains unknown, as does the progress of the missile sale.
There is also considerable vagueness about military goods exported by the Indian companies. Bhatt told Parliament in August 2021 that the exported items included simulators, tear gas launchers, torpedoes, loading mechanisms for aircraft and night vision binoculars. Also included in the list were fire control systems for armoured vehicles, weapon locating radars, high-frequency radios and coastal radar systems.
And though this list sounded formidable, Bhatt tellingly added a damper; he admitted that the ‘majority’ of these exports included merely ‘parts and components’.
There are multiple factors, other than numerous putative reforms, that influence military equipment exports. In FY 2019-20, for example, exports declined from the previous year’s tally of Rs 10,746 crore to Rs 9,116 crore, falling further to Rs 8,435 crore in FY 2020-21 due, in all probability, to the COVID-19 pandemic.
Conversely, the jump in exports during FY 2020-21 was possibly due to the MoD ‘prevailing upon’ private vendors to make up the shortfall in achieving their annual offset targets for previously imported equipment and ordnance. Offsets of 30% are levied on all materiel purchases over Rs 2,000 crore, requiring the vendor to invest in India’s defence and security sector. That the foreign vendors are struggling to meet the offset targets is quite well known.
Considering that many of the companies under pressure to make up for the shortfall in discharging their offset obligation are US-based, it is not surprising that the main exports during the FY 2021-22 were to the US, followed by the Philippines, with which India signed the BrahMos deal in January this year.
The other importers of Indian defence products include unnamed countries in South-East Asia, West Asia and Africa.
There is a further complication in the offing that could see offsets not only decline in value, but fade out altogether. This is because all ab initio single vendor procurements, including those from the US via its Foreign Military Sales programme and other countries under inter-governmental agreements, are exempt from offsets since 2020. Seen in this perspective, defence exports could plummet, or plateau, once offset obligations under process were completed.
India aims to export aerospace and military equipment worth Rs 35,000 crores by 2025, for which exports will need to grow two-and-a-half times in the current fiscal and over the two subsequent years.
An honest assessment of where India stands – in 2017-21 it accounted for 0.2% of the global arms export – and a well-coordinated strategy to make deep inroads into big defence markets are essential. This target cannot be achieved by exporting components and sub-systems, banking on offset contracts to boost export, the occasional big-ticket sale, or by deluding ourselves through clever accounting.
Amit Cowshish is a former financial advisor (acquisitions), Ministry of Defence.