India Planning to Ease Defence Exports

The Indian Ministry of Defence (MoD) has proposed a new scheme similar to the FMS (Foreign Military Sales) followed by the United States in facilitating sale of Indian military equipment to friendly countries. The plan, tentatively named Foreign Military Assistance is proposed to be administered by the MoD after taking inputs from the Ministry of External Affairs (MEA).

The US uses FMS program as a form of security assistance authorized by the Arms Export Control Act (AECA), and a fundamental tool of U.S. foreign policy.

A draft, currently under consultation stage between the MoD and MEA, proposes to ease the process of supplying defence equipment to strategic partners and optimise the outcomes from the current practice of just extending a line of credit to friendly countries to buy defence equipment from India and leaving the decision to shortlist and choose the platforms and navigate the complex processes in India to the recipient country alone. Often, the countries that want to utilise the generous loan offered by India find themselves battling roadblocks because of a rule that says they need to make a ‘price discovery’ in the Indian market and find their way through complicated bureaucratic processes before concluding a deal.

Now, to overcome the delays and obstacles, the Indian MoD wants to draw up a list of equipment (supplied both by the Defence PSUs and the private Indian defence sector) bought by the Indian military—platforms that can be shared with friendly countries—and then advice the foreign militaries to buy the same equipment using the loan offered by India.

Simultaneously, the MoD proposal says it would ask the DPSUs and successful private sector vendors to sign on on the scheme by agreeing to supply the same item at the price paid by the Indian military with an in-built escalation clause thrown in. By doing so, the MoD is hoping to achieve two primary objectives: One, foreign militaries need not waste time on testing equipment they intend to buy since the Indian armed forces would have already done due diligence. Two, the foreign purchase teams need not run around trying to make a ‘price discovery’ in the Indian market, a never-ending saga in the largely opaque sector. At the moment, negotiating teams from friendly countries keep looking for a ‘fair price’ of Indian products, then negotiate their way through the complex processes that EXIM Bank (designated as the banking platform for export-import) has.

Currently, India has granted around 1.5 billion dollars as line of credit to friendly foreign countries ranging from Afghanistan to Vietnam, to enable them to purchase defence equipment from India. The list of countries also includes Bangladesh and Myanmar just to name two others.

Separately, the MoD is in the process of setting up a specific export promotion/ facilitation body with participation from industry representatives. According to a MOD document, “the body could be in the form of a society or a not for profit company under the Companies Act. The role of the body would be to render advice to government on various export related issues, coordinate all export facilitation schemes of the government, increase awareness amongst the industry about various export facilitation measures and promotion of exports through specific marketing efforts in targeted countries.”

The body will identify the suitable export markets in consultation with Ministry of External Affairs and Department of Commerce, keeping in view India’s foreign policy and various international export control and arms control regimes. Moreover, the MoD is also planning to formally allow Indian Defence and Military Attaches posted in various embassies across the world to do a ‘sales pitch’ about Indian defence products, manufactured both by the public and the private sector. So far, the MAs and DAs have tended to avoid pushing Indian products openly since they are not sure if this is covered in their job description! Now on however the DAs would be mandated to boost Indian defence exports. In February earlier this year, many of the Defence Attaches posted abroad were flown in to interact with the industry at the Defence Expo held in Chennai to better understand the Indian market and of course gather more information about the MoD’s plans for defence exports.

These steps combined with the MOD’s proposal to grant Specific incentives for defence exports to be implemented in consultation with the Department of Commerce, industry associations and Ministry of External Affairs within the purview of Foreign Trade Policy, would spur growth in India’s anaemic efforts in this regard so far. Line of credit facility available in Ministry of External Affairs is also likely to be leveraged suitably to promote defence exports from India. Wherever feasible, the possibilities will also be explored for financing of defence exports through EXIM Bank. Similarly, Buyer’s Credit facility of Department of Commerce would also be leveraged, a defence ministry document suggests. A separate strategy to finance the exports to weaker countries would be worked out in consultation with MEA, EXIM Bank, DPSUs, private sector and other financial institutions, it adds.

After years of consigning defence exports to the bottom of the priority list, India has lost out many an opportunities to leverage its goodwill with militaries of friendly countries. If the steps outlined above are taken quickly, perhaps the situation may change for the better in coming years.

Nitin A. Gokhale