India’s arms production and inferences from SIPRI report

Many countries undertake arms production business through a combination of big, medium and small enterprises. (Representative image)

India's domestic military industrial complex (MIC) is thriving. Innovative and constructive public policies have fuelled the MIC's expansion and consolidation. Domestic production is meeting two-thirds of weapons requirements. Exports have gone up ten times in the last decade. Most importantly, India's embarrassing import figures should stabilise in the near future. Amongst these euphoric facts, figures, and futuristic projections, the recent Fact Sheet from the Stockholm International Peace Research Institute (SIPRI) related to 'top 100 arms-producing and military services companies, 2023' contains inputs that can further push India's ambition of metamorphosing itself into a front-ranking military power, producing advanced technology weapons.

One may debate the very centrality of the SIPRI Fact Sheet in evaluating military powers, based on only ‘big arms companies’. Many countries undertake arms production business through a combination of big, medium and small enterprises. Smaller companies benefit from higher growth potential, faster production, swift technological and reverse-engineering adaptability, and better market and export potential. Therefore, the big and bold picture as reflected in the SIPRI top 100 does not sufficiently represent the MIC spread in different countries. Yet, the list does reflect, to some extent, the realities of great power politics. For instance, the US had 41 companies in top 100 in 2023 that earned $317 billion in revenues. This was 50% of cumulative revenues of $632 billion of the club. Other great powers like China (16%), United Kingdom (7.5%), France (4%), and Russia (4%) also had significant weightage in the club. On the other hand, India is a peripheral player with only 1.1% space within the club. This does not auger well for a country aiming at self-sufficiency in arms production.

On the face of it, three Indian defence companies are listed in the top 100 club (Hindustan Aeronautics Limited or HAL, Bharat Electronics or the BEL, and Mazagaon Dock Shipbuilders). They also had a collective growth rate of 5.8% in 2023 that is quite impressive compared to the collectivity of European companies (0.2%), Chinese companies (0.7%), US companies (2.5%), and the UK companies (3.4%). Nevertheless, it is also a fact that Indian companies in past had a much better position and had occupied positions in top 40 of the club. Also, the erstwhile ordnance factories have gone out of the list for multiplicity of factors, including rearrangement as seven corporate entities.

Nevertheless, the SIPRI list also has many inferred reality-bites for India.

First, most companies in the SIPRI list are in the private sector. As against the ubiquitous trend, the burden of defence production is still on the existing defence PSUs in India. All the three listed Indian companies in the top 100 are defence PSUs. Further, in 2023-24, all the defence PSUs (including the new defence PSUs consisting of erstwhile ordnance factories) contributed Rs 74,434 crore out of the total domestic defence production turnover of Rs 127,265 crore. The defence PSUs, therefore, have a near-monopolistic domination of the domestic MIC. Unfortunately, production entities in the public sector tend to be conservative, cautious, and slow.

Second, the private sector constituent of India's domestic MIC is equally less entrepreneurial, risk-averse, and not overtly enthusiastic to benefit from the multiplicity of public policy initiatives in the defence sector that are otherwise 'the talk of the town'. One example would suffice. While the defence PSUs increased their turnover by 70% from 2016-17 to 2023-24, the private sector could increase its turnover by only 87% during the same period. This is not a big deal, given the autonomous and independent business instincts of the private sector. There is hardly any private sector defence entity with a global reputation and business turnover.

Third, domestic orders played a big role in the revenue upsurge of many countries last year. Thus, Russia, South Korea, Japan, Israel, and Taiwan saw their domestic MICs surge up with huge revenue growth rates. This should provide hints to the domestic MIC constituents within India, which is itself a big market for arms procurement. Public policy initiatives such as negative lists of prohibited import items, preferential procurement policy in the Defence Acquisition Procedure (2020), and liberalised FDI policy are just representative steps nudging the domestic MIC towards larger partnerships. Unfortunately, many Indian companies do not have the technical wherewithal and investment capabilities to meet India's huge weapons requirements.

Fourth, big players in the SIPRI top 100 club are also from developed countries with established leads in technology innovation and production. On the other hand, India is still a developing economy and suffers from the generic problem of low levels of innovation and technology production. Unlike civil sectors, military technology is not readily available for diffusion and proliferation in the international market, even at a premium. This hampers India's quest for self-reliance in military weapons production. The protracted and unending experimentation in the Kaveri engine project for indigenous fighter jets is one representative example.

If SIPRI sticks with $1 billion as the benchmark for entering the SIPRI top 100 club next December, some Indian entities in the public sector and private sector have a fair chance. Additionally, the existing listed companies have a chance to go up the ladder since American, European, and Chinese companies are undergoing 'pangs of slow growth or negative growth'. For Indian companies to do well, the philosophy and culture of defence production have to realign with the generic business culture so that titanic companies emerge in the private sector as well!

Better positioning in SIPRI's different publications does matter for enhanced global recognition. India needs concurrent attention on different fronts: reduce its numero uno position in the SIPRI list of arms-importing countries; make an entry in the SIPRI list of 25 largest arms exporters; and, most importantly, ensure its grand positioning in the SIPRI top 100 list through the entry of more defence production companies and rank enhancement of existing companies. These are long-term but achievable milestones. There lie future public policy challenges for India.