Govt relaxes norms for private firms in defence sector

The government said on Thursday that private companies would no longer require any industrial license to produce a large number of components and sub-systems required in military hardware.

The relaxation has been extended to standard heavy engineering techniques like “casting” and “forging”, which can enable private firms to cast the hull of submarines and forge the barrels of artillery guns in future.

The new notification issued by the Union Commerce Ministry has a four-page list as an annexure scheduling several areas, where private participation would be barred.

The no-go areas include making of tanks and armoured vehicles, aircraft, warships and a large number of arms and ammunition for the Army, Air Force and Navy.

“But still many components, laboratory equipment, parts of equipment and weapons as well as casting and forging have been taken out of the restrictive list. Since these items are not defence items till they are integrated into a bigger system, they should not be subjected to industrial license,” said a defence ministry official.

The decision can benefit heavy engineering firms like Bharat Forge, L&T and Walchandnagar Industries. While L&T has a facility to caste the hulls of submarines and warships, Bharat Forge has developed artillery guns, whose barrels were forged at their own units.

“This step is important as it would bring more clarity to the procedures and it will encourage new entrants into the defence sector. Indian defence industry is already at the bottom of the value chain and there is very less incentive for anyone to set up a defense industry in India,” said Baba Kalyani, chairman and managing director of Bharat Forge who heads the Confederation of Indian Industry’s national committee on defence.

Manufacturing of defence items needs compulsory licensing under the Industries (Development and Regulation) Act, 1951. In 2001, private firms were allowed to enter into the defence market if they get an industrial license from the commerce ministry.

In an attempt to spur the manufacturing sector, the Narendra Modi government has not only done away with the license, but also relaxed the government control on the production of dual use items having military and civilian applications.

“Dual use items, other than those mentioned in the (annexed) list, would also not require industrial license from defence angle,” says the notification.

The relaxation comes within a month of Defence Minister Arun Jaitley’s statement that he would review the contentious issue of foreign direct investment in the defence sector.