Defence PSUs and exports: How Modi, Rajnath and Jaishankar team crafted an astonishing success

Last week, the defence ministry of Argentina signed a letter of intent to buy light and medium utility helicopters from Hindustan Aeronautics Limited (HAL). This is a landmark for HAL, as well as for India, in terms of supplying military hardware to countries around the world.  But the success has not come suddenly. To understand this better, take two simple numbers. The first is five times. That is how much the stock price of HAL has grown in the last five years. This has turned HAL into one of the highest valued public sector enterprises in India today. Its market capitalisation now compares with energy majors such as Coal India, Indian Oil and Bharat Petroleum. The second number is even more impressive. Twenty-three times. That is how much India’s defence exports have grown in the last nine years. In the 2022-23 financial year, India had Rs 16,000 crore of defence exports, up from just Rs 686 crore in 2013-14. These numbers, especially those for HAL, might come as a bit of surprise for those who remember. Around the 2019 elections, there were many accusations that the government was trying to ‘destroy’ HAL. This now looks like a misinformation campaign. The orderbook of HAL is currently full, with Rs 84,000 crore worth of deals. Another Rs 50,000 crore are said to be in the pipeline. The media deserves criticism for not following up on this story after 2019. In any case, some of the media was complicit in that misinformation campaign. Who can forget cropped images of sensitive defence related documents published in one major newspaper? There is even more good news for HAL. They are now teaming up with GE Aerospace to manufacture jet engines. It happened around the time of Prime Minister Modi’s visit to the United States. The US typically does not share such technology even with its closest allies. In fact, this deal is so favorable to India that it has caused heartburn in sections of the US military industrial complex. ‘The GE deal could strengthen India’s indigenous defense industry for decades, which might not serve U.S. interests in the long term,’ warned Foreign Affairs magazine in a June 2023 article. In other words, India might not have to buy so much from outside in the future. India is the biggest importer of weapons in the world. We have to change this. Through a clever combination of domestic and foreign policy, the successes are slowly adding up. How India began to build its defence sector It started with something called a “Positive Indigenisation List”. Since 2020, the defence ministry has issued four of these, and the number of items in these lists has reached nearly 4,000. For each item, there is a cutoff date after which it can no longer be imported from outside. It has to be purchased domestically. Now Indian companies, both public and private, know exactly what the government plans to buy and when. It does not always have to be ‘big’ things, such as entire ships and aircraft. Each item used in defence equipment, such as aircraft tires, batteries for various systems, or even training simulators, can be highly specialised. The results so far have been encouraging. The share of foreign purchases in defence procurement usually hovers around 40 per cent. With certain big ticket acquisitions, this rose to nearly 50 per cent in 2018-19. This has been brought down to around 36 per cent in 2022-23. For 2023-24, there is an ambitious target of 75 per cent domestic procurement. While we do not know yet if the target can be met, the momentum is in the right direction. As of now, India’s defence exports go to over 80 countries. But we are still a bit player in the global arms export business. The market is dominated by big monopolies, backed by superpower governments. The problem is that India does not have yet a large high value flagship item that it exports around the world. This is why the helicopter deal with Argentina matters so much. Both for HAL and for India. How clever foreign policy finds gaps in global monopolies But why Argentina? The answer lies in a couple of tiny islands off the eastern coast of South America, known as the Islas Malvinas. Or as the British would call them, the Falklands Islands. In 1982, Britain fought a short war against Argentina over these islands. The bitterness still endures. As a result, Argentina faces sanctions on importing military equipment with any British parts, even if just one tiny bolt. Apparently, even the Indian made helicopters have a couple of British made parts, one ejection seat in particular. HAL will have to modify them in order to export to Argentina. This is what it takes to find gaps in the big monopolies that dominate the global arms export business. The United States alone accounts for nearly half of all global military exports. Though far behind, Russia and France usually compete for the second position. In fact, the arms export business looks very much like the empires of the past. Each country has a couple of powerful defence contractors. These defence contractors fund politicians. In turn, a big part of the foreign policy of each government is to maintain the monopoly of their defence contractors in their client states. Even China is yet to make it big in military exports. Over the years, Israel has carved out a niche for itself by focusing on certain smaller but high technology items such as drones and spy equipment. Every country will play dirty to protect its turf. This is what India is up against. So how does India squeeze into the gaps? Last year, Foreign Minister S Jaishankar visited Nicosia and India signed deals with Cyprus. Why Cyprus? Because Cyprus and Turkey are enemies. The Turks occupy the northern half of the island of Cyprus. Since Turkey is a member of NATO, the options for Cyprus to import military hardware from the US and its western allies are somewhat limited. This is where India comes in. The other day there were reports that Indian made multi barrel rocket launchers have reached Armenia over land through Iran, which is India’s close ally. Armenia and Azerbaijan are almost always at war over a piece of territory called either Artsakh or Nagorno Karabakh. Now Azerbaijan is a Turkic state, and Turkey is strongly on the side of Azerbaijan. Hence, India has started selling weapons to Armenia. This has made Turkey and Azerbaijan furious with India, but so what? We have a hard nosed foreign policy that puts Indian interests first. And perhaps Turkey should know that there is a price for trying to meddle in Kashmir. Not just HAL, all our defence PSUs are doing well One of the great things about social media is the ability to gather information on niche topics that few people talk about. When I shared initial thoughts about HAL’s growing profile, a number of people came forward with important facts that got almost no media attention. The details are indeed startling. It is not just HAL. Every big defence PSU has done amazingly well in the last five years. Mazgaon Docks is up over 1000 per cent since it was listed on the stock exchange. The stocks of GRSE (Garden Reach Ship Builders & Engineers) are up over 500 percent. Bharat Electronics Limited (BEL), which makes radars and missiles, is up over 200 percent. So is Bharat Dynamics Limited or BDL, which makes missiles. For comparison, these numbers are well above the performance of the BSE Sensex, which is up 76 per cent in five years. A word about the founder of HAL It was Walchand Hirachand Seth, who hailed from Morbi in Gujarat, and who lived in Solapur in present day Maharashtra. He set up HAL in 1940 with the help of the Wodeyar kingdom of Mysore. He also set up India’s first shipyard, then called Scindia shipyard, in 1941 in Visakhapatnam. This was later nationalised by the government in 1952, and it became Hindustan Shipyard Limited (HSL). Yes, India was making ships and planes in the 1940s, thanks to the genius of our private entrepreneurs. Now be honest. When I talked about the founding of HAL or HSL, were you thinking of someone else perhaps? If so, you might be a victim of the deliberate hollowing out of public memory in the decades after independence. A success story that deserves to be told A rising global power needs its own weapons industry to supply the world. The United States got its start during World War I, supplying weapons to Britain and France. By the time the US was fully mobilised in the Second World War, it was producing over one ship a day! The Ford factory at Willow Run in Michigan was turning out more than one bomber aircraft per hour. This industrial might became the bedrock of American global dominance in the second half of the 20th century. India is more than a hundred years behind. To catch up, we will need a number of things. A burst of efficiency from existing public sector units. Participation from the private sector and a new wave of private entrepreneurs. Government policies that can support their efforts. A clever foreign policy that will find opportunities for them. But for the moment, the groundbreaking growth of India’s defence sector in the last nine years is a success story that deserves to be told. The writer is an author and columnist. He tweets @AbhishBanerj. Views expressed in the above piece are personal and solely that of the author. They do not necessarily reflect Firstpost’s views. 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