In a strategic move, India has established a fresh mechanism designed to accelerate the sale of military equipment to friendly nations such as Bangladesh, Vietnam, Sri Lanka, Afghanistan, Myanmar, and others. This will be executed through defence lines of credit (LoC).
The procedure in question is currently being operationalised for defence public sector undertakings and the Ordnance Factory Board. In due course, as the system stabilizes, it will be expanded to include private sector companies manufacturing defence equipment.
Akin to US Foreign Military Sales Program
This new setup is comparable to the well-known foreign military sales (FMS) program of the United States. The FMS route has been used by India for most of its weapon system purchases from the US, including assets like the C-17 Globemaster-III strategic airlifters, C-130J “Super Hercules” planes and M-777 ultralight howitzers.
FMS is quicker and more straightforward than the typically cumbersome global tender process, which often takes many years and may get side-tracked by corruption allegations.
New Provisions for Fresh and Unutilised Defence LoCs
Under this new system, both fresh and unutilised defence LoCs will be extended. India has previously offered defence LoCs to Vietnam and Bangladesh. However, their actual implementation has been somewhat inconsistent and hindered by factors such as the lengthy, complex process of “price discovery” for the defence products chosen by the friendly countries.
| Country | LoC Offered |
|---|---|
| Vietnam | Yes |
| Bangladesh | Yes |
Advantages of the Standard Operating Procedure
The innovative standard operating procedure (SOP) aims to significantly increase the speed at which defence LoCs are utilised by friendly countries. This is hoped to prevent third parties, such as China, from undercutting Indian weapon supplies to countries like Bangladesh, Sri Lanka, and Myanmar.
Furthermore, Indian defence corporations will now be able to “directly quote” the prices of the selected products at the rate they were sold to the Indian armed forces, inclusive of built-in escalation and exchange costs. This is expected to eliminate previous bottlenecks in the process.
India’s Defence Manufacturing Capabilities and Challenges
While India’s defence production sector is still not robust, it does have certain weapon systems that can be effectively exported. These include the BrahMos supersonic cruise missiles, developed in collaboration with Russia, and indigenous systems like the Akash surface-to-air missile systems, Tejas light combat aircraft, and Dhruv advanced light helicopters.
However, India faces stiff competition from China, which has emerged as the world’s fifth-largest arms exporter — after the US, Russia, France and Germany — through consistent focus on indigenous defence production and reverse-engineering of advanced military technology.
Understanding Line of Credit and Foreign Military Sales
A Line of Credit (LoC) is an agreement between a financial institution—usually a bank— and a customer that specifies the maximum loan amount the customer can borrow. Similarly, the U.S. Department of Defense’s Foreign Military Sales (FMS) program enables sales of U.S. arms, defense equipment, defense services, and military training to foreign governments.
Under the FMS program, the purchaser does not deal directly with the defense contractor. Instead, the Defense Security Cooperation Agency serves as an intermediary, handling procurement, logistics, delivery, and often providing product support, training, and infrastructure construction.