Small but Mighty

MSMEs crank up Australia-India defence Partnership

Over the past decade, the Australia-India defence partnership has undergone a significant transformation, evolving into a comprehensive strategic partnership in response to mutual security concerns, notably those arising from China's assertive regional posture. This partnership has been further strengthened by regular Summit meetings, the institution of the Australia-India Foreign and Defence Ministerial Dialogue, and strategic military agreements. These developments illustrate the depth of commitment between the two nations towards maintaining stability in the Indo-Pacific.

Both nations have leveraged platforms like the Quad and Malabar exercises to reinforce their shared security outlook, while also focusing on bolstering resilience in supply chains through initiatives like the Resilient Supply Chains initiative. Though the opportunities for joint defence exports and manufacturing between Australia and India are abundant, progress needs to be guided towards a more sustained and rooted engagement. One area where such collaboration can be deepened in the realm of defence trade and technology transfer is the collaboration among Micro, Small, and Medium Enterprises (MSMEs) in the two countries.

Current State of Defence MSMEs in Australia and India

To put it in perspective, the defence sector in India has traditionally been dominated by large public enterprises, with recent policy shifts allowing up to 49% foreign direct investment (FDI) automatically, and up to 100% with government approval to foster growth and innovation. The Indian government's ambitious target aims to triple the current annual defence production by 2028-29, striving for a production value of US$3.00tn and doubling defence exports to US$500bn. This growth is supported by significant indigenisation of defence items, where 2,920 out of 4,666 listed items have been localised, including critical components and assemblies.

Conversely, Australia's defence industry is characterised by its indigenisation efforts, backed by substantial government investment, with plans to spend $200bn over the next decade to enhance defence capabilities. The industry largely comprises subsidiaries of global manufacturers, with over 3,000 SMEs integrated into the defence supply chain, primarily as subcontractors. The Australian government's active promotion of local defence capabilities includes numerous programmes aimed at bolstering SMEs within the industry.

While both nations have identified a number of partnerships between their defence sectors, MSMEs can play a pivotal role in their respective economic and security strategies. In India, approximately 433 startups and MSMEs are actively engaged in defence production as of December 2023, reflecting a significant shift towards integrating more agile and innovative entities into the defence manufacturing landscape. This integration is mirrored in Australia's strategic defence policies, which continue to support and expand the capabilities of MSMEs in the sector.

Export Control Exemption: Facilitating Defence Collaboration among Allied Nations

As evidenced by the proposed AUKUS Exemption by the US State Department’s Directorate of Defence Trade Controls (DDTC) (which aims to facilitate defence cooperation among the United States, Australia, and the United Kingdom), there is a growing recognition of the need to streamline export controls to support allied partnerships. Similarly, revising export controls within the QUAD group, which includes Australia, India, the United States, and Japan, could provide a framework for enhancing defence trade and technology sharing among like-minded partners.

Steps towards Revising Export Controls

Revising export controls can serve as a pivotal enabler for enhancing technology security and fostering international cooperation amongst key and strategic partners. Key strategies to consider in this endeavour include the establishment of collaborative frameworks, where export controls are crafted and applied in concert with relevant tech-leading partner democracies. 

Reframing the strategic goals of export controls to protect select areas of technological advantage with like-minded partners and democracies, particularly in the face of rising global technology-centred strategic competition, is crucial. This will safeguard critical technologies from exploitation or misuse, while preserving national security interests. These steps will ensure that export controls are applied only where necessary in an equitable manner and supporting global security without stifling innovation and cooperation amongst like-minded partners.

Last but not the Least: The Strategic Imperative

The strategic imperative of the Australia-India partnership is also focused on multilateral security, which is now looking beyond bilateral defence to include economic prosperity, capability building and collaborative research between friendly nations highlighting the multifaceted nature of these collaborations. Given the significant role India plays as a "top-tier security partner" in Australia's National Defence Strategy, and Australia's commitment to deepen defence cooperation through bilateral and multilateral engagements as well as defence industry cooperation, the narrative around MSMEs and export control reforms emerges as a critical issue.

The current Australia-India strategic relationship positions MSME collaboration and export control revisions at the heart of the defence partnership discourse. The potential exists to both strengthen the Australia-India defence ties and also ensure a more secure and resilient Indo-Pacific region through strategic partnerships, bolstered by the collaborative innovation of MSMEs and aptly supported by enlightened export control policies. These efforts will strengthen the military ties and open avenues for economic engagement, demonstrating the comprehensive nature of the Australia-India strategic imperative.

About the Authors

Pradeep Mehta is the Secretary General of Consumer Unity and Trust Society (CUTS) International and Anil Wadhwa is a former Indian Diplomat and Distinguished Fellow of CUTS International. Anjali Shekhawat of CUTS provided research support for the article.