In accordance with the move to relax FDI norms in defence sector to the maximum limit of 100 per cent, the government has come out with another forward looking decision which will not only boost the private defence industry in India but also expand the base of the manufacturing sector in the country, which is in urgent need of government care. The private sector can now freely manufacture the defence-related systems not exactly meant for use in battleground like the battle tanks, fighter planes, missiles, warships, ammunitions, heavy explosives, etc. In fact, just within the first month of Narendra Modi Government, the Commerce Ministry in consultation with the Defence Ministry has heavily pruned the list of defence items which cannot be manufactured by the private sector. The rest of the weapon platforms, systems and equipments can be produced by the private sector, without requiring any licence. Since the Press Note No.3 issued by the government has not specified the limit of the FDI in these defence related dual use production facilities, the industry watchers have assumed that they can attract 100 per cent FDI in these sectors.

In fact this will largely streamline the industrial licensing process for defence equipment for which permits would not be needed for production. Till now the monopoly for producing these items was retained by the public sector defence undertakings and ordnance factories. Even the soldier’s shoes and special garments were required to be sourced by the three services from the ordnance factories which resulted in lack of competition and hence low quality and high price product thrust on the armed forces and its soldiers. Now the ordnance factories will have to compete with the private sector defence industries, producing non-sensitive defence products. Till now the defence items were covered under compulsory licensing under the Industries (Development and Regulation) Act, 1951.

According to the Ministry of Commerce and Industry statement Items not included in the list would not require industrial licence for defence purpose. Further, it is clarified that dual-use items, having military as well as civilian applications, other than those specially mentioned in the list, would also not require industrial licence for defence angle.

Since the move would boost manufacturing sector, the industry chambers have widely welcomed the decision. Commenting upon the decision of far reaching significance, A. Didar Singh, General Secretary, Federation of Indian Chambers of Commerce and Industry (FICCI) said, the relaxed norms “will relive Indian defence industry including large number of MSMEs engaged in manufacture of components in synchronising with global supply chains of OEMs, as also benefit manufacturers of dual use item. This will give impetus to Indian Industry to invest in defence R&D, manufacturing and enter into strategic sector to strengthen the indigenous capabilities and march towards self-reliance and greater indigenisation.”

The other industry chamber the Confederation of Indian Industry (CII) was equally effusive in its welcoming statement, saying “It is important to maintain a fair balance between addressing genuine security concerns and promoting India’s defence industry. Given the opportunity, this industry has the potential to generate large employment opportunities and provide much needed impetus to India’s manufacturing sector leading to its professed goal of self-reliance. Baba N. Kalyani, Chairman, CII National Committee on Defence, said, “We are happy to see that Ministry of Defence has taken cognisance of CII’s recommendations to prune the list and keeping it to the bare minimum.”

Considering the fact that the Indian armed forces purchase weapons systems and spare parts worth more than $15 billion from domestic and foreign sources (last year’s defence budget was $38 billion), the Indian defence industry can now hope to bag this huge defence market, a big chunk of which till now was monopolised by the foreign arms manufacturers. In fact the latest Government decision on relaxing the norms will not only progressively make India self-dependent on defence-related items, but will also help the country become a hub for defence-related spares, as we have seen in the auto sector, which is now playing a very significant role in Indian manufacturing, simply because of the fact that the government encouraged the multinational auto companies to set up their shops in India.

Now, similar policy regime for the defence sector will have a spin-off effect for the other sectors also and will definitely help India to evolve into a major defence exporting country. This will generate such confidence in Indian private defence sector that they can one day hope to manufacture on their own major defence systems in the country.