The Prospective Impact on the Indian Defence Industry Under a Third Modi Term

The last decade has witnessed a transformative shift in the Indian defence manufacturing industry, marked by a concerted push towards self-reliance and indigenization. Historically dependent on imports for its defence needs, India has increasingly focused on building a robust domestic defence industrial base. This transition is driven by a combination of strategic policy reforms, technological advancements, and a growing emphasis on innovation and private sector participation.

Central to this shift is the ‘Make in India’ initiative, launched in 2014, which has galvanized efforts to enhance domestic production capabilities. The government’s ambitious Atmanirbhar Bharat (self-reliant India) campaign further underscores the commitment to reducing dependence on foreign suppliers and fostering indigenous development of critical defence technologies. Key policy reforms, such as the revision of the Defence Procurement Procedure (DPP), now Defence Acquisition Procedure (DAP), and the increase in Foreign Direct Investment (FDI) limits in the defence sector, have created a more conducive environment for domestic and foreign investments.

In parallel, the establishment of defence corridors in Uttar Pradesh and Tamil Nadu aims to create clusters of manufacturing excellence, promoting synergistic growth among public and private entities. These corridors are expected to drive innovation, enhance production efficiencies, and generate significant employment opportunities.

Moreover, the role of micro, small, and medium enterprises (MSMEs) has been increasingly recognized, with targeted support to integrate them into the larger defence manufacturing ecosystem. Collaborations with international defence giants have facilitated technology transfers and joint ventures, further bolstering India’s manufacturing capabilities.

The cumulative effect of these initiatives is a burgeoning defence manufacturing industry that is not only meeting domestic needs but also positioning India as a competitive player in the global defence market. The transformative shift from being the largest importer of arms in the world to attaining self-reliance and bringing in the global teams to manufacture in India has been the output of the efforts of the Diplomats, Policy Makers and the Prime Minister himself.

Though there seem to be radical overhaul in the process, initially the results were not clearly visible. The organisation of the events, expos and the global players – in\out on the projects and criticism on aiming for being self-reliant from the inner corners was quite audible to everyone. The prospect of Narendra Modi securing a third term as Prime Minister of India brings forth numerous implications for various sectors, including the defence industry. Since taking office in 2014, Modi’s administration has significantly reshaped India’s defence landscape through a series of reforms aimed at bolstering indigenous manufacturing, enhancing operational capabilities, and expanding strategic partnerships.

If Modi is re-elected, his third term is likely to further cement and expand upon these initiatives, driving the Indian defence industry towards greater self-reliance and global competitiveness. A cornerstone of Modi’s defence policy has been the push for self-reliance, encapsulated in the ‘Atmanirbhar Bharat’ (Self-Reliant India) initiative. The government’s emphasis on indigenization has already resulted in a substantial increase in domestic defence production. Defence Public Sector Undertakings (DPSUs) and private companies have been encouraged through policies such as the Defence Acquisition Procedure (DAP) 2020, which prioritizes indigenous design and manufacturing. Under a third Modi term, this trend is expected to gain further momentum. The government will likely continue its focus on fostering a robust ecosystem for indigenous defence technology, reducing dependency on foreign suppliers, and enhancing India’s position as an exporter of defence equipment.

Enhanced Defence Budget and Modernization

The Leadership’s tenure has seen a steady increase in defence budgets, prioritizing modernization of the armed forces. A third term would likely continue this trend, with increased allocations for procurement, research and development, and infrastructure development. Modernization efforts are expected to encompass advanced weaponry, cutting-edge technology, and upgraded logistics and infrastructure, ensuring the Indian Armed Forces are well-equipped to handle contemporary and future threats.

Modernization Programs

The modernization of the Indian Armed Forces under the Modi government encompasses a broad range of initiatives across the Army, Navy, and Air Force. These programs aim to replace outdated equipment, introduce cutting-edge technology, and enhance operational capabilities.

1. Indian Army:

1. • Artillery Modernization: The induction of the M777 Ultra Lightweight Howitzers and K9 Vajra-T self-propelled artillery guns has significantly enhanced the Army’s firepower and mobility.
   • Infantry Upgrades: The procurement of advanced assault rifles, bulletproof vests, and night-vision devices has improved the combat readiness and safety of the infantry.
   • Armoured Vehicles: The acquisition of T-90 and Arjun Main Battle Tanks, along with the development of the Future Infantry Combat Vehicle (FICV), underscores the focus on modernizing the mechanized forces.

2. Indian Navy:

1. • Naval Expansion: The commissioning of new warships, submarines, and aircraft carriers, such as INS Vikrant, reflects the Navy’s enhanced blue-water capabilities.
   • Submarine Fleet: The induction of the Scorpene-class submarines under Project 75 and the indigenous development of the Arihant-class nuclear submarines have bolstered underwater warfare capabilities.
   • Naval Aviation: The addition of P-8I Poseidon maritime patrol aircraft and MH-60R Seahawk helicopters has strengthened maritime surveillance and anti-submarine warfare capabilities.

3. Indian Air Force (IAF):

1. • Fighter Jets: The acquisition of Rafale fighter jets from France has significantly upgraded the IAF’s air combat capabilities. The ongoing induction of indigenously developed Tejas Light Combat Aircraft (LCA) further enhances the fleet.
   • Transport and Helicopter Fleet: The induction of C-17 Globemaster III and C-130J Super Hercules transport aircraft, along with Chinook heavy-lift and Apache attack helicopters, has improved strategic airlift and combat support capabilities.
   • Air Defence: The procurement of S-400 air defence systems from Russia enhances India’s airspace security and missile defence capabilities.

Infrastructure Development and Cyber Security

The Modi government has also focused on enhancing defence infrastructure and cyber capabilities:

1. Border Infrastructure: Significant investments have been made in building and upgrading infrastructure along the borders, including roads, bridges, and forward airbases. This infrastructure is crucial for rapid troop deployment and logistics support especially along the Line of Actual Control.
2. Cyber Security: Recognizing the growing threat of cyber warfare, the government has prioritized the development of cyber defence capabilities. Initiatives include setting up specialized cyber units and collaborating with international partners to strengthen cyber security frameworks.

 Policy Reforms and Strategic Initiatives in the Indian Defence Sector Under the Modi Government

These efforts aim to not only strengthen India’s defence capabilities but also establish the country as a key player in the global defence market.The Defence Production Policy 2018 aims to achieve self-reliance in defence production by 2025. The policy targets the development of indigenous capabilities in design, development, and manufacturing across the defence value chain. It emphasizes reducing imports and increasing exports, setting ambitious goals for enhancing India’s defence manufacturing base.

The revision of the Defence Procurement Procedure (DPP) in 2016 and its subsequent transformation into the Defence Acquisition Procedure (DAP) in 2020 have streamlined procurement processes. DAP 2020 introduced several key changes, including a greater focus on Indigenous content, simplification of procurement categories, and faster decision-making processes. The policy encourages the participation of Indian vendors and promotes the use of Indian-made defence products.

The government has liberalized the FDI policy in the defence sector, increasing the FDI limit from 49% to 74% under the automatic route and up to 100% through the government route for projects involving modern technology or for other reasons to be recorded. This move aims to attract foreign investments, foster joint ventures, and facilitate technology transfer.

Introduced in the DPP 2016 and carried forward in DAP 2020, the Strategic Partnership Model allows Indian private sector companies to collaborate with global Original Equipment Manufacturers (OEMs) to produce major defence platforms such as fighter jets, helicopters, submarines, and armoured vehicles. This model aims to build long-term partnerships and enhance India’s defence manufacturing capabilities.

Strategic Initiatives

Make in India and Atmanirbhar Bharat (Self-Reliant India)

The ‘Make in India’ initiative, launched in 2014, and the ‘Atmanirbhar Bharat’ campaign, announced in 2020, are at the forefront of the Modi government’s vision for self-reliance. These initiatives encourage the indigenous development and production of defence equipment. Under these programs, several defence items have been identified for indigenization, and import embargoes have been placed on a range of defence products to promote local manufacturing.

Defence Corridors

The establishment of defence corridors in Uttar Pradesh and Tamil Nadu aims to create clusters of defence manufacturing excellence. These corridors are designed to provide a conducive ecosystem for defence production by offering infrastructure, connectivity, and investment incentives. They are expected to attract investments, foster innovation, and create job opportunities.

Innovations for Defence Excellence (iDEX) and Defence Innovation Organisation (DIO)

The iDEX initiative and DIO were launched to foster innovation and technology development in the defence sector. iDEX provides a platform for startups, MSMEs, and innovators to contribute to defence solutions through funding, mentorship, and collaboration with the defence establishment. This initiative aims to create an ecosystem that supports the development of cutting-edge defence technologies.

Defence Exports Promotion

The Modi government has taken significant steps to promote defence exports, setting a target of achieving USD 5 billion in defence exports by 2025. Measures include simplifying export procedures, providing export incentives, and engaging Defence Attaches to market Indian defence products abroad. The government has also created a separate Defence Export Promotion cell to facilitate and streamline export processes.

Public-Private Partnerships

The government has encouraged Public-Private Partnerships (PPPs) to leverage the capabilities of both public sector undertakings and private sector companies. Initiatives like the Strategic Partnership Model and the involvement of private players in major defence projects have strengthened the defence industrial base and enhanced competitiveness.

The comprehensive policy reforms and strategic initiatives undertaken by the Modi government have significantly bolstered India’s defence sector. The emphasis on self-reliance and indigenization has reduced dependency on foreign suppliers and created a robust ecosystem for defence manufacturing. The liberalization of FDI and the promotion of private sector participation have attracted investments and fostered innovation.

Expansion of Product Portfolio

Expansion of Indigenous Defence Products

1. Missile Systems: India’s missile development program has seen remarkable advancements. The Defence Research and Development Organisation (DRDO) has successfully developed and tested various missile systems, including the Agni-V intercontinental ballistic missile (ICBM), the BrahMos supersonic cruise missile, and the Akash surface-to-air missile system. The integration of these advanced missile systems into the Indian Armed Forces has significantly enhanced India’s strategic and tactical capabilities.
2. Fighter Aircraft: The indigenous development of the Light Combat Aircraft (LCA) Tejas marks a significant milestone. The Tejas, designed by the Aeronautical Development Agency (ADA) and manufactured by Hindustan Aeronautics Limited (HAL), has been inducted into the Indian Air Force (IAF) and is poised for export to other countries. The government has also approved the development of the Advanced Medium Combat Aircraft (AMCA), further expanding India’s fighter aircraft portfolio.
3. Helicopters: The HAL-produced Advanced Light Helicopter (ALH) Dhruv and the Light Combat Helicopter (LCH) have bolstered the rotary-wing capabilities of the Indian Armed Forces. These helicopters are designed for diverse roles, including reconnaissance, search and rescue, and ground attack missions. The LCH, in particular, has been developed to operate at high altitudes, addressing specific operational requirements of the Indian Army and Air Force.
4. Armored Vehicles: The development of the Arjun Main Battle Tank (MBT) Mk-1A and the induction of the K9 Vajra-T self-propelled howitzer represent significant strides in India’s armored vehicle capabilities. The Arjun Mk-1A, an upgraded version of the Arjun MBT, features improved firepower, mobility, and protection systems. The K9 Vajra-T, a collaboration between India and South Korea, enhances India’s artillery strength with its high mobility and precision.
5. Naval Platforms: The Indian Navy has witnessed the induction of several indigenously built vessels. The INS Vikrant, India’s first domestically constructed aircraft carrier, is a symbol of self-reliance in naval capabilities. The Scorpene-class submarines, developed under Project 75, and various surface ships such as the Kolkata-class destroyers and Kamorta-class corvettes have significantly strengthened India’s maritime defence.
6. Unmanned Systems: The development of indigenous unmanned aerial vehicles (UAVs) and unmanned combat aerial vehicles (UCAVs) has expanded India’s capabilities in surveillance, reconnaissance, and combat operations. The DRDO’s Rustom UAV and the HAL’s rotary-wing UAV, along with the ongoing development of the Ghatak UCAV, highlight India’s advancements in autonomous systems.

Technological Innovations and R&D

The Modi government has placed a strong emphasis on research and development (R&D) to drive innovation in the defence sector. Initiatives such as the Innovations for Defence Excellence (iDEX) program and the establishment of the Defence Innovation Organisation (DIO) have fostered collaboration between the military, academia, and industry. These efforts have led to the development of cutting-edge technologies in areas such as artificial intelligence, cyber warfare, and electronic warfare.

Public-Private Partnerships

The role of the private sector has been pivotal in expanding India’s defence product portfolio. The government’s push for increased private sector participation has led to successful collaborations and joint ventures with global defence companies. These partnerships have facilitated technology transfers, enhanced manufacturing capabilities, and resulted in the development of high-tech defence products.

Global Outreach and Export Potential

India’s expanded defence product portfolio has bolstered its export potential. The government has set an ambitious target to achieve defence exports worth USD 5 billion by 2025. Key export successes, such as the sale of BrahMos missiles to the Philippines and the interest in Tejas fighter jets from various countries, underscore India’s growing footprint in the global defence market.

 Incentives and Support Mechanisms

Recognizing the dual benefits of enhancing national security and fostering economic growth, the government has introduced several incentives and support mechanisms, including export financing, tax exemptions, and subsidies. These measures are designed to encourage Indian defence manufacturers to explore international markets, boost their competitiveness, and ensure sustained growth in defence exports.

Export Financing

One of the critical challenges faced by defence exporters is the availability of financing options. To address this, the government has introduced various export financing mechanisms:

1. Export Credit Guarantee Corporation of India (ECGC): The ECGC provides export credit insurance services to Indian exporters. By mitigating risks associated with exporting, such as payment defaults and political uncertainties, ECGC encourages more companies to venture into international markets. The enhanced coverage and simplified procedures have significantly benefited defence exporters.
2. Exim Bank of India: The Export-Import Bank of India offers specialized financial products tailored to the needs of defence exporters. These include pre-shipment and post-shipment credit, buyer’s credit, and lines of credit. These financial tools ensure that defence manufacturers have the necessary working capital to fulfill international orders without financial strain.

Tax Exemptions

To make Indian defence products more competitive globally, the government has implemented various tax exemptions:

1. Goods and Services Tax (GST) Exemptions: Defence exporters are eligible for GST exemptions on goods manufactured for export. This reduces the overall cost of production and makes Indian defence products more price-competitive in the international market.
2. Customs Duty Exemptions: To further reduce the cost burden, the government offers exemptions on customs duties for raw materials and components imported for the manufacture of defence products meant for export. This measure lowers production costs and enhances the competitiveness of Indian defence products.

Subsidies and Incentives

The government has also introduced several subsidy schemes and incentive programs to support defence exporters:

1. Production-Linked Incentive (PLI) Scheme: The PLI scheme for the defence sector aims to boost manufacturing and enhance exports. Under this scheme, companies receive financial incentives based on their incremental sales of defence products over a base year. This encourages manufacturers to scale up production and tap into international markets.
2. Export Promotion Capital Goods (EPCG) Scheme: The EPCG scheme allows defence exporters to import capital goods at zero customs duty, provided they commit to exporting goods worth six times the value of the imported capital goods within a specified period. This helps manufacturers upgrade their production facilities, adopt advanced technologies, and increase their export capabilities.
3. Duty Drawback Scheme: Under the Duty Drawback Scheme, exporters are reimbursed for duties paid on imported inputs used in the manufacture of export products. This ensures that the cost of production remains competitive and encourages exporters to penetrate global markets.

Support Mechanisms

In addition to financial incentives, the government has established various support mechanisms to facilitate defence exports:

1. Defence Export Steering Committee (DESC): The DESC, chaired by the Defence Secretary, provides strategic direction and oversight for defence exports. It addresses policy issues, coordinates between various stakeholders, and ensures that the export targets are met. This high-level committee plays a crucial role in streamlining processes and removing bottlenecks.
2. Export Facilitation Cell: The Ministry of Defence has established an Export Facilitation Cell to assist defence exporters. This cell provides end-to-end support, from identifying potential markets to navigating regulatory procedures and export documentation. It acts as a single point of contact for exporters, simplifying the entire export process.
3. Defence Attachés: Defence Attachés stationed in Indian embassies abroad play a vital role in promoting defence exports. They engage with foreign governments, identify opportunities, and facilitate interactions between Indian exporters and potential international buyers. Their efforts have been instrumental in securing export orders and expanding India’s defence footprint globally.

Market Access Initiatives

To further stimulate defence exports, the government has actively pursued market access initiatives:

1. Bilateral and Multilateral Agreements: India has signed various bilateral and multilateral defence cooperation agreements that include provisions for defence trade and exports. These agreements facilitate easier market access and establish a framework for long-term defence collaborations.
2. Trade Shows and Exhibitions: The government actively supports the participation of Indian defence companies in international trade shows and exhibitions. Events like DefExpo and Aero India provide a platform for Indian manufacturers to showcase their products, engage with potential buyers, and secure export deals. The increased visibility and networking opportunities at these events have significantly boosted export prospects. 

Expansion Of Defence Exports

Notable Defence Export Deals

1. BrahMos Missiles: One of the most significant defence exports has been the BrahMos supersonic cruise missile, developed jointly by India and Russia. The Philippines became the first foreign customer for the BrahMos, signing a deal worth nearly USD 375 million in early 2022. Other countries, including Vietnam and Indonesia, have also expressed interest in acquiring these missiles, highlighting the global demand for Indian-developed advanced missile systems.
2. Radars: The DRDO-developed radar systems have been exported to several countries, providing them with advanced surveillance capabilities. These radars, used for battlefield surveillance and reconnaissance, showcase India’s technological prowess in electronic warfare.
3. Advanced Light Helicopter (ALH) Dhruv: The indigenously developed ALH Dhruv has seen considerable success in the international market. Countries like Mauritius and Ecuador have procured these multi-role helicopters, which are known for their versatility and reliability in diverse operational conditions.
4. Coast Guard Vessels: India has also made significant inroads in exporting naval vessels. For instance, Mauritius received the Offshore Patrol Vessel (OPV) Barracuda, built by Garden Reach Shipbuilders and Engineers (GRSE), marking a milestone in India’s naval exports. This OPV is instrumental in maritime patrol and surveillance operations.
5. Tejas Light Combat Aircraft (LCA): The indigenous Tejas LCA has attracted interest from several countries. While concrete export deals are still in the negotiation phase, the potential sale of Tejas to countries like Malaysia and Sri Lanka signifies India’s capability to compete in the global fighter aircraft market.
6. Arjun Main Battle Tank (MBT): The Arjun MBT has been showcased to potential international buyers, with discussions underway with countries in Africa and Southeast Asia. The tank’s advanced features and competitive pricing make it an attractive option for several militaries. 

Strengthening Strategic Partnerships

One of the most notable partnerships is with the United States. Under Modi’s leadership, India has elevated its status from a “Major Defense Partner” to a comprehensive strategic ally. The signing of critical defence agreements such as the Logistics Exchange Memorandum of Agreement (LEMOA), the Communications Compatibility and Security Agreement (COMCASA), and the Basic Exchange and Cooperation Agreement (BECA) has facilitated deeper military cooperation and intelligence sharing. Joint exercises like the Malabar naval exercise, which now includes Japan, highlight the enhanced interoperability between the armed forces of these nations.

India’s relationship with Russia, a long-standing defence partner, has also evolved. The purchase of the S-400 missile defence system despite potential sanctions from the US underlines India’s commitment to maintaining a diversified defence portfolio. Additionally, ongoing collaborations on platforms like the BrahMos missile and joint production of military equipment continue to strengthen this partnership.

France has emerged as a crucial partner with the landmark acquisition of Rafale fighter jets, boosting India’s air combat capabilities. The partnership extends beyond procurement, with collaborative projects in submarine technology and joint exercises like Varuna and Garuda, enhancing operational synergy.

Israel remains a key defence partner, particularly in the realms of surveillance, intelligence, and missile technology. The strategic cooperation includes advanced systems like the Barak-8 missile and the Heron drones, pivotal for India’s security infrastructure.

Japan and India have also scaled up their defence ties, focusing on maritime security and regional stability. The acquisition of the US-2 amphibious aircraft and the joint naval exercises underscore this partnership’s strategic importance, especially in the Indo-Pacific region.

These deepened strategic partnerships have not only bolstered India’s defence capabilities but also positioned it as a critical player in regional and global security architectures. The technological advancements and operational synergies derived from these alliances have enhanced India’s readiness to address contemporary security challenges. Moreover, Modi’s diplomatic engagements have reinforced India’s role as a reliable and influential defence partner, fostering stability and security in an increasingly multipolar world.

Narendra Modi’s potential third term as Prime Minister holds significant implications for both the Indian defence industry and global Defence Original Equipment Manufacturers (OEMs). Under Modi’s leadership, India has seen substantial advancements in its defence capabilities and a strategic push towards self-reliance. Continuation of these policies would provide stability and sustained growth for the sector. Here are several key reasons why Modi’s third term is crucial for these stakeholders:

The Modi government has introduced several key initiatives and reforms aimed at transforming India’s defence sector. Programs like ‘Make in India’ and ‘Atmanirbhar Bharat’ have laid the groundwork for a self-reliant defence industry. A third term for Modi would ensure the continuity and consistent implementation of these policies, crucial for long-term projects and strategic partnerships.

Defence projects often have long gestation periods. Continuous leadership can ensure steady progress and completion without disruption. Global OEMs prefer stable and predictable policy environments. Consistency in leadership ensures that the regulatory framework remains stable, encouraging long-term investments.

Modi’s tenure has been marked by increased defence budgets and investments in indigenous production capabilities. A third term would likely see further enhancements in these areas; Ensuring adequate funding for modernization programs, research and development, and procurement of advanced technologies. Continued development of defence corridors and investment in state-of-the-art manufacturing facilities and testing labs.

A third term would provide continuity in collaborative projects, facilitating technology transfers and joint ventures that enhance India’s defence capabilities. Strengthened international relations and defence cooperation agreements provide a stable foundation for ongoing and future collaborations. The Modi government has set ambitious targets for defence exports and introduced policies to support this goal. Continued leadership would reinforce efforts to expand India’s footprint in the global arms market.

Continued support through export financing, tax exemptions, and subsidies would help Indian companies compete internationally. Strengthened diplomatic relations under Modi can open new markets for Indian defence products. Under Modi, there has been a strong emphasis on promoting indigenous manufacturing to reduce dependency on imports. This has involved significant policy reforms and incentives for domestic manufacturers.

Continuation of incentives like the Production-Linked Incentive (PLI) scheme can attract more private players into the defence sector.Small and medium enterprises have received targeted support to become part of the defence supply chain, fostering innovation and employment.

Modi’s policies have encouraged Foreign Direct Investment (FDI) in the defence sector, raising the cap to 74% under the automatic route. This has made India an attractive destination for global OEMs looking to invest in defence manufacturing. Continued liberalization of FDI policies would attract more global players to set up manufacturing bases in India. Strengthening of PPP models can lead to better resource utilization and innovative solutions in defence manufacturing.

A third term for Narendra Modi as Prime Minister would provide the necessary stability, continuity, and policy support crucial for the growth of the Indian defence industry and the interests of global defence OEMs. Modi’s leadership has been pivotal in transforming India’s defence landscape through strategic reforms, enhanced investments, and robust international partnerships. Continued leadership would ensure the momentum is sustained, fostering a self-reliant, globally competitive defence sector that contributes significantly to national security and economic growth.