India has consistently been amongst the biggest arms importer in the world for many years. It has always depended on countries like USA, Russia and France for the majority of its defence imports as it imported defence equipments worth $17 billion in the last 5 years. In 2020, it has a budget of $63 billion for defence which is bigger than the budget for health and education combined. Needless to say, a bulk of this would be spent on imports.
To prevent such spectacular outflow of money, the government came up with a list of 101 equipments which will be under an import ban starting December 2020.
The list includes items like sniper rifles, radar systems, artillery guns, transport aircraft, bulletproof jackets, communication satellites, shipborne cruise missiles etc. The government has called it a “negative list”. So does this mean that India will be starved of these vital combat equipments? No. All this procurement will now be diverted to local manufacturing. This will be worth a total of $53 billion spent on indigenous weapons. Indian players already manufacture a lot of these items on the list. And this “negative list” will be revised periodically to include more items if required.
The Indian government had also set a $25 billion defence production target, including making $5 billion from exports, by 2025. So this will be a huge boost to “Aatmanirbhar Bharat” initiative.
After looking at this development, investors of companies involved in defence contracts got excited and the stock price shot up immediately. But tendering, manufacturing and payment take years to realize. And import ban on some of these items does not kick in till 2025.
A major reason India imported these equipments was due to the lack of technology. So creating some of these weapons would need us to import a part of it or form JVs. Also, as most of our arms manufacturers are PSUs, they are highly inefficient. And in some instances importing an item would be cheaper than local manufacturing it due to the lack of required experience and economies of scale.
Key Takeaways:
Government’s move to reduce the huge import burden in defence-related activities signals strong intent to optimize costs. Some of the items in the list are already manufactured in India, so it is a reclassification of sorts. But as more and more items grow on the list it will be a huge push towards self-reliance and give a boost to job creation, saving of foreign currency and technology transfer.
Cutting costs and boosting the local economy by diverting defence imports is a #Teji move. Ambitious targets set by the government will certainly push all players involved. It is a necessary move to reach $5 trillion economy status.
