India is to reserve billions of dollars worth of weapons and other defense items for domestic manufacturers, shutting out overseas suppliers and generating jobs in a slowing economy.
The move is aimed at attracting investment while reducing overseas defense dependence.
The move could trim supplies from India’s top arms exporters Russia, Israel and France, among others. From 2015 to 2019, India was the world’s second-biggest arms buyer after Saudi Arabia, according to the Stockholm International Peace Research Institute (SIPRI). Russia accounted for 56% of India’s purchases, with Israel and France 14% and 12% respectively.
Defense Minister Rajnath Singh released a list of 101 items to be reserved for domestic production, which could mean $55 billion of business over the next six to seven years.
The list includes missiles, artillery guns, howitzers, light combat helicopters, anti-tank mines, transport aircraft, multi-purpose vessels, submarine sonar, conventional submarines, anti-submarine water warfare and shallow water craft.
The government will over the next four years phase different weapons systems into the so-called reserved list for domestic companies, and could gradually expand the list.
Defense experts see in the measure a realization of the need for India to diversify and expand domestic defense production. It would also get local companies involved, attract investment and generate jobs that have been shrinking since before the pandemic struck countries around the world.
During 2015-19, Saudi Arabia accounted for 12% share of global arms imports, followed by 9.2% by India, according to SIPRI. This is despite a one-third cut in arms imports by India during the period compared with 2010-2014.
Despite being the largest supplier of arms to India, Russia’s share of India’s arms imports fell to 56% during 2015-19 from 72% in 2010-2014.
During 2010-14, the United States became the second-largest arms suppliers to India on the heels of a nuclear agreement between the two countries and development of a strategic partnership. During 2015-19 Israel and France replaced the US, taking the positions of second and third suppliers.
For Russia, India remains a critical market, accounting for a fourth of its arms exports. Russia has been a steady arms supplier to India for more than half a century. India last month turned to its traditional supplier when faced with incursions into its territories in Ladakh by China.
India sought top-of-the-line S400 missile systems and additional fighter jets. China is the second largest importer of Russia arms, accounting for 16% of its arm sales.
Defense analysts say India’s decision to bite the bullet with regard to defense production may have more to do with its budget constraints and less to do with its high dependence on Russia. It gets an easier payments facility from Russia, reducing the necessity to dip into its reserves or buy US dollars to make payments.
In India’s latest defense budget of $67 billion for the financial year to March 2021, about $21 billion had to be set aside for pensions and other civilian commitments. More than half of the increase in the defense budget went towards pensions. Modernization of defense equipment got less than a fourth of the increase in the defense budget.
India is no stranger to manufacturing arms and other weapons systems, which was strongly pushed by former Prime Minister Indira Gandhi, building on the base built by her father Jawaharlal Nehru.
Bangalore-based Hindustan Aeronautics Ltd (HAL) has been delivering MiG, Sukhoi and Jaguar fighter jets to the Indian Air Force in collaboration with the Russians and the French. HAL was initially supposed to make Rafale jets too under the deal worked out by the previous Congress-led government.
India has a vibrant defense manufacturing base producing from machine guns to artillery. It also churns out high technology missiles designed to fly from a few hundred kilometers to thousands of kilometers, a useful spinoff from its indigenously developed rocket technology.
Earlier this year, Modi set domestic industry a $5 billion annual export target for arms by 2025 and a production target of $25 billion within five years. Defense minister Singh’s announcement could fit neatly into the government’s strategic plan.
Experts, however, warn that the Make in India obsession should not push the country to compromise on quality and delivery schedules. This could be critical during an emergency or external threat. Domestic producers will have to compete with the best in the world and that may not be easy.