The Department of Industrial Policy and Promotion (DIPP) under the Ministry of Commerce and Industry has raised serious concern over the delay in issuing industrial licences for defence procurement by the Ministry of Defence.
In a letter written to the cabinet secretary last week, Dipp said the Department of Defence Production (DPP) under the defence ministry had been refusing to recommend cases for industrial licences (ILs) “citing reasons which prima facie do not seem to be justifiable”. At present, as many as 49 applications for IL are pending with DPP, some of which had been lying with them since March 2008. Some of significant ones belong to the Kirloskar Group, Tata Motors Ltd, Mahindra and Mahindra, Godrej and Boyce Manufacturing and Larsen & Toubro.
Under current norms, DIPP issues ILs for the manufacture of items in the defence sector after it is approved by the Licensing Committee. However, the committee is mandated to obtain comments from DPP prior to granting the licences.
The defence sector, on the other hand, is administered by the Foreign Direct Investment (FDI) policy, defence procurement procedure and the IL regime.
“There is an urgent need to strengthen the indigenous defence industry, in order to reduce our dependence on imports of defence equipment, facilitate technology absorption in defence and allied areas, generate employment and facilitate achieving the government’s objective of higher level of indigenisation. The production of defence equipment by the private sector in the country will provide immediate impetus to the manufacturing sector in the shape of large scale ancillarisation, as has happened in major industrialised nations like the US, France and Germany,” DIPP said in its letter to the Cabinet secretary.
It also said such resistance on the part of DPP had led to an “an anomalous situation” in which the private players were not able to get defence procurement orders in the absence of a licence and, on the other, they were not able to make investments for creation of capacity so that they might get the orders.
More From This Section
India is one of the largest importer and spender on defence equipment. Currently, the country’s 70 per cent of defence needs are met through imports. Despite such massive expenditure, 50 per cent of the defence inventory is suffering obsolescence, according to a study done by consultancy firm KPMG.
“Also, we are missing out an opportunity for getting substantial FDI in the sector as a corollary of the offset policy since foreign companies do not get Indian partners who hold Industrial Licence in the defence sector. The gradual opening up of the defence sector to the private sector would provide significant incentive for the transfer of know-how to the country, leading to higher levels of technological expertise,” the letter said.
DIPP had long been pushing for opening the defence sector for more FDI. In May last year, it had floated a discussion paper proposing a case for increasing the level of FDI to 74 per cent and 100 per cent in the country’s defence sector from the present cap of 26 per cent, to boost the domestic defence equipment manufacturing industry.
While, on one hand, the indigenous R&D has not kept pace with requirements of present day warfare, transfer of technology from foreign vendors, on the other hand, has not been a success due to the restricted FDI limit. Since indigenous manufacturing capabilities are not well developed, it is difficult to repair, modernise or upgrade the defence equipment.
There is, therefore, a need to have a vibrant defence industry within the country to produce state-of-the-art defence equipment, said KPMG in its study.