Helping India Replace Russia in the Value Arms Market

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The United States dominates the high-end arms market, and as a result the high-end arms market dominates American discussions of weapons sales. But while American analysts focus on fifth generation front-line fighters and billion-dollar transactions, there is a second market for buyers looking for a better deal. This “value market” encompasses at least 112 countries with annual defense budgets of less than three 24-plane squadrons of new F/A-18s.

Russia has always been a major player in this market, providing older-vintage or refurbished equipment to states that have often been neglected by Washington. But as a result of its invasion of Ukraine, Russia will increasingly struggle to meet the value market’s needs. This provides an opportunity for Washington to work with New Delhi to make sure that Russia’s role is filled by India, rather than by China.



Currently, India’s defense export sector is tiny. India was the 23rd-largest arms exporter between 2011 and 2017 and exports in 2021 only totaled $1.13 billion. But U.S.-Indian collaboration can help the Indian industrial complex to produce weapons that India will use, and that value market customers will purchase. India, in turn, should adjust its policies and procedures, and stop favoring government-owned defense companies. To succeed as an arms exporter, India should adjust technology sharing and ownership requirements on defense contracts, reduce reliance on Russian technology, and institute internationally recognized quality control systems. None of these proposals are politically easy but all are strategically necessary if India hopes to seize Russia’s role in the value arms market.

To support this, Washington should fast-track export control approval for Indian collaboration, actually utilize India’s Major Defense Partner status to export dual use technology, establish shared industrial heritage by moving legacy production lines to India, and assist India’s development of transparent acquisition and procurement processes.

These polices will require Congressional action, which in turn will require balancing domestic political concerns and national security priorities. But doing so will ultimately benefit the United States. Washington will still be selling the world’s prestige weapons systems. It should work with India to make sure that the rest of the world is buying its armored vehicles, small arms, and helicopters from a friendly nation instead of an adversary.

Who Will Replace Russia?

Russia is the second-largest global arms exporter. It has averaged $13-15 billion in annual sales since 2000 and accounts for 20 percent of all international sales since 2016. Unlike the United States and European countries, Russia has a bifurcated market presence. It sells high-end expensive systems (aircraft are approximately 50 percent of its total export value) to a concentrated consumer base (73 percent of its exports go to India, China, Egypt, and Algeria) while maintaining a network of clients who purchase capable but value-priced equipment. The value market comprises developing countries that purchase older model tanks like the T-54/55/64/72, refurbished aircraft such as the II-76 and An-12, and new equipment such as Yak-130 subsonic trainer, Pantsir missile systems, and AK-200 series assault rifles. In Africa, Asia, the Middle East, and Latin America, Russian defense equipment extends Russian political influence. Russia’s potential inability to satisfy international contracts because of Russo-Ukrainian War-related equipment losses, the U.S.-led sanctions regime, and domestic political inefficiencies, prompts a question: Who fills the void?

The U.S. government has identified China as a likely candidate. After decades of exporting lesser Soviet-designed or co-produced weapons, China is climbing the value chain while still maintaining competitive advantages in the Global South. Since 2000, China has reduced imports of Russian weapons as it has developed its own indigenous defense production capability. China primarily sells weapons to Asia, which constituted 77 percent of its exports between 2016-2020. Sales to Pakistan accounted for 38 percent of China’s total exports in Asia, though China has diversified to Bangladesh, Myanmar, Thailand, and Indonesia. China increasingly exports to Africa as well, where it experienced 55 percent growth between 2012 and 2017. Chinese sales in Argentina, Bolivia, and Peru cover a range of equipment including ocean patrol boats, radars, training aircraft, armored personnel carriers, surface-to-air missiles, and multi-role fighters (JF-17). In short, China is well-positioned to leverage the Belt and Road initiative and recipient debt into political gains. Below-cost weapon sales can help to consolidate China’s physical presence and threaten U.S. foreign policy objectives.

Alternative suppliers for the value market are difficult to identify. France, the third-largest exporter by Stockholm International Peace Research Institute’s standardized common cost unit in 2021, does not compete with China for the value market because of cost. The bulk of France’s defense export earnings from 2015 to 2019 were from sophisticated high-priced items such as Dassault Aviation’s Rafale fighter or the Naval Group’s submarines, frigates, and minesweepers. Moreover, France also exports high-end equipment to China like the AS565S military helicopter, as well as helicopter engines, avionics, radars, and frigate engines, which would make it reluctant to compete with China for the value market. Germany, the fifth-largest exporter by the Peace Research Institute’s values in 2020, has high production costs and low manufacturing rates that hamper entering the value market. Germany’s recently announced defense budget increases will first focus on acquiring arms for its domestic needs before considering export markets. France, Germany, and other top global suppliers like the United Kingdom, Israel, Spain, and South Korea, are also hesitant to export to countries with questionable human rights records — who make up a share of the value market.

Enter India

India is not a traditional arms exporter. Since India’s independence in 1947 and through its transition to a free-market economy in 1991, India did not focus on arms exports. The trend continued until 2014 when India’s exports began to rise. By 2016, India had a series of prospective export deals lined up across multiple countries, weapons systems, and subsystems.

Currently, India lacks the financial and manufacturing capacity to kickstart its indigenous defense manufacturing. The “Make in India, Make for the World” initiative launched in 2020 seeks to revive industrial heavy manufacturing by attracting domestic and foreign investments, deregulating and de-licensing industrial processes, and providing government assistance to manufacturers.

In the defense sector, this initiative seeks to stop imports of defense systems such as artillery, missile destroyers, tank engines, and surface-to-air missiles by 2022. The effort to increase cash flow to domestic manufacturing resulted in import bans on entire weapons systems. To prevent import curbs from harming India’s ability to produce competitive quality weapons, however the Defense Production and Export Promotion Policy also created a Technology Assessment Cell, which will add flexibility to import restrictions. In short, India has already taken several steps to encourage domestic defense manufacturing.

The government has also tried to reform public-sector weapons manufacturing, but significant problems remain. The largest segment of Indian manufacturers are the state-owned Defence Public Sector Undertaking firms. In this sector, the government assigns the production of certain subsystems, components, and platforms to specific firms in an inefficient manner. In 2022, the government streamlined the Defence Public Sector Undertaking firms by consolidating 41 factories into seven Public Sector Defense Undertakings, but further streamlining is needed.

While the public sector firms produce licensed equipment from external suppliers, mainly Russia, they face problems with quality, price, and configuration for client needs. For example, defective ammunition identified in 2010 remained in storage until it exploded in 2016, killing 19 soldiers and injuring 17 others. These quality control problems are exacerbated by a cozy relationship between public firms and the Directorate General of Quality Assurance. Much as Boeing’s relationship with the Federal Aviation Administration has led to questions about oversight quality, India faces problems with the regulatory structure of public-sector defense manufacturing.

Private Manufacturers Can Help

If India wants to produce internationally competitive arms, the private sector offers opportunities to do so. Private-sector manufacturers accounted for 90 percent of all defense exports in 2021 despite, or perhaps because of, the fact that the public sector dominates India’s domestic arms industry. International collaboration is easier with commercial companies because they share a similar business models and practices when compared to government entities. Companies such as Tata, Reliance, Mahindra, Adani, and Kalyani have rapidly expanded foreign collaboration efforts and revealed the potential of India’s developing industrial capacity. Tata Motors Limited has manufactured the Kestrel, an infantry fighting vehicle with amphibious capability. Tata Aerospace and Defence manufactures components for fighter jets, missile systems, radar systems, transport aircraft, helicopters, and drones. For avionics, small arms, ammunition, night vision devices, Reliance Defence Limited has collaborated with original equipment manufacturers from NATO countries, namely France (Dassault and Naval Group, Safran, Thales), Germany (Hensoldt and Diehl), Slovakia (Konstrukta), and the United States (Genesys Aerosystems, Rapid Mat).

However, the private-sector manufacturers are hobbled by the Indian government’s public-sector ties, which often dictate that government entities must be incorporated into agreements. Private sector companies are rarely given technology transfers for new platforms by the state controlled Defence Research and Development Organization, while export requests are often diverted to Defence Public Sector Undertakings. For example, private sector Indian companies recently complained that Hindustan Aeronautics Limited enjoys undue advantage in securing government contracts because of its privileged access to state infrastructure. What’s more, public companies also have advantages when bidding for contracts.

To address this, India should recalibrate regulations to enable U.S. firms to participate in co-production. For example, India’s strategic partnership program prevents foreign majority ownership of defense manufacturers, thus prohibiting potentially useful joint ventures. India can also pursue indigenously or jointly developed subsystems. India is already moving in this direction, drawing on its extensive indigenous software engineering capability to support partners in aircraft and helicopter construction.

International partners will in turn help India to overcome the last hurdle to market access by ensuring equipment quality. India and its partners should develop internationally acceptable product testing standards and maintenance processes. Doing so will avoid the kind of disaster that that occurred when India sold its indigenous Dhruv helicopter to Ecuador: Following a series of crashes caused by lack of after-sales support, the helicopters were grounded and a corruption investigation in Ecuador is ongoing.

In sum, India should prioritize its private sector, reform its industrial base, strengthen collaborations, and improve product reliability. Current collaborative efforts are concentrated in the high-end sector, with India prioritizing the production of a front-line fighter aircraft. But these efforts are less likely to succeed than collaboration in the value market.

Washington’s Role

What should the United States do to facilitate India’s emergence as a value arms exporter? First, Washington should embrace India’s role as a Major Defense Partner. India received this designation in 2016, though major sales and collaborations have been slow to develop. The United States should expedite the export-control review of the newly announced $500 million arm sales to India. Moreover, the Commerce Department should facilitate negotiations between U.S. companies and Indian partners, streamlining processes to facilitate U.S. opportunities. The Senate can help by passing the current amendment to equate India to nearly ally status while Washington should also ensure timely deliveries of weapons that have already been purchased, even amidst backlogs.

Beyond this, Washington should help move legacy production lines from the U.S. to India. This is not standard foreign direct investment; Washington’s involvement is necessary to push U.S. companies into alignment with its strategic vision. Politically, moving production overseas is deeply unpopular. However, many of these U.S. jobs are slated to disappear anyway. Washington can help to ensure that U.S. companies retain licensing revenue, and that key components continue to be produced in America. For example, the Department of Defense has historically requested fewer Abrams tanks than Congress procures. If India were to move manufacturing, it could have a situation similar to the Abrams production line in Egypt, which offers U.S. companies service contract opportunities and thus contributes to U.S. defense industrial health while appeasing Congress, retaining access to a production line, and enabling the Defense Department to allocate better for priorities, all while reaping benefits from global sales opportunities.

In moving legacy production lines, the United States can still retain control of subcomponents and software that are vital to protect national security. India would then produce and integrate subsystems for the legacy equipment. India’s private sector has the capacity to emulate international examples of shared industrial heritage such as the Italian M-346 trainer, a variant of the Russian Yakovlev 130, and South Korea’s FA-50 that they developed from the T-50 trainer.

Consider a hypothetical example of potential U.S.-Indian collaboration. The Ladakh clash in 2020 spurred India’s domestic pursuit of a 25-ton or lighter tank to counter China’s Type 15. Currently, India faces a minimum 5-year development and production lag. General Dynamics Land Systems and BAE Systems are competing for the U.S. Army light tank contract. Hypothetically, the U.S. winner could supply their vehicles to India without export-controlled subsystems. India, in turn, would create and integrate subsystems not included in the base platform. Distinct U.S. and Indian variants benefit all actors. India accelerates its light tank development, a U.S. firm develops a new market partner, and India produces a distinct light tank for itself and the value export market.

Finally, the United States should support India’s development of a transparent acquisition and procurement process. This does not require that India mirror the U.S. system. Instead, the United States should leverage its expertise in private sector engagement, extensive acquisition knowledge, and transparent decision-making process to assist India in improving its own in acquisition and procurement.

It is in the interest of the Quad member states, India’s non-Russian partners, and America that India become a capable arms exporter over the coming decade. If Washington and New Delhi both take the right steps, India will be able to fill Russia’s position in the value market, thus, preventing China from doing so.



Vasabjit Banerjee is an associate professor of political science at Mississippi State University. Benjamin Tkach is an assistant professor of political science at Mississippi State University.

Image: Indian Ministry of Defence