The MHA is likely to bring the Arms Act Amendment Bill, 2015, wherein the private industries will be allowed to manufacture and proof test Small Arms & Ammunition including the ones being used by military. The author explains the overall effect on industry…
The manufacture of arms and ammunition is presently regulated under a licensing system established by the Arms Acts (1959) and Arms Rules (1962) and is under Government domain. The manufacturing of Small Arms for armed forces/paramilitary forces/police, are confined to the Department of Defence Production. Even after liberalization of the Indian economy and removal of licensing regime for major industries, the private sector is not allowed in this sector. There are 95 firms licensed by the Ministry of Home Affairs, Government of India for the manufacture of guns (single barrel/double barrel) and 25 firms manufacturing cartridges (either blank cartridges or live cartridges or both) up to the quota permitted in their licences. The Department of Industrial Policy and Promotion (DIPP) obtained a decision from the Cabinet during 2001 - 2002 to allow manufacture of arms and ammunition in the private sector with nil or upto 26% FDI, and issued Industrial licences to some firms in the private sector namely Max Aerospace, Bharat Forge, L&T and Punj Lloyd etc to manufacture arms and ammunition, but the MHA never cleared it basically due to security concerns. Currently the Issuance of fresh licenses to small scale sector units and enhancement in quota of existing firms are both disallowed.
However, recently, MHA has formulated a draft Arms Act-2015 and it has been put up in the open domain for comments from all sections of stakeholders, wherein the private industries will be allowed to manufacture and proof test arms & ammunition including the ones being used by military. The Home Ministry is likely to bring the Arms Act Amendment Bill, 2015, in the next Parliament session. The Arms Act, 1959, and the Arms Rules, 1962, is also likely to be amended to factor in the major policy change in the last budget that hiked FDI in domestic arms manufacturing from 26% to 49%. Import and export of firearms and ammunition have been simplified, procedures for import, export, export for re-import introduced to fall in tune with the EXIM policy, concept of in-transit licences introduced, transportation of firearms and ammunition defined and new concept of licences for transporters of firearms and ammunition introduced. Provisions for consolidation of multiple licences are being introduced and also the licensing procedures are being simplified and existing ambiguities on major issues are likely to be removed.
The relevant details of draft Arm Rules-2015 with regards to the License for manufacture and proof test of arms & ammunition are in Rule Numbers 49 to 68 of draft Arm Rules 2015 (DAA) deals with manufacturers. The authority for licencing in this category is Ministry of Home Affairs (MHA) and not DIPP. Provisions for both fresh applicants and entities already holding licences exist. The licence for manufacture or proof-test or both for arms & ammunition shall be applied in Form VII which consists of two parts, Part I and Part II. The Part I is required to setup the facility for manufacture or proof test of arms and ammunition and Part II is required for commencement of commercial production.
Form VII Part I: Part I of licence shall be granted to those applicants who fulfill the eligibility criteria laid down in these rules provided that no adverse comments are received from various government agencies entrusted for verifying the antecedents of the applicant company or its directors or responsible person, as the case may be. This will be valid for a period of seven years. The licensee shall be required to setup the facility for manufacture or proof test of arms and/or ammunition, recruit technical and administrative staff, develop & proof test proto-types of arms and ammunition, conduct trial runs and any other activity related to the setting up of the facility for the manufacture or proof-test of arms and ammunition within the validity period of seven years of the licence. No extension of time limit or renewal of licence in Part I of Licence in Form VII shall be granted by the licensing authority. The licensing authority shall ensure that the security conditions contained in the Security Manual prepared by the department of defence production, Ministry of Defence are fully complied with before granting a licence for commencement of commercial production for manufacture of firearms and ammunition.
The applicant is required to file a declaration along with proof thereof to the effect that it has acquired the land for setting up the manufacturing plant or for setting up proof-test. Facility, details of access road to the proposed site, installation of electricity and water connection, particulars of land development carried out. The manufacturing facility shall not be permitted to be setup in the border areas, restricted areas or prohibited areas and any area declared as disturbed area by the Central Government from time to time. The manufacturer applicant may setup the facilities in Special Economic Zones (SEZ), Industrial Parks and other industrial areas in addition to any other location duly approved by the concerned State Government for this purpose.
Form VII Part II: The licensee shall make an application in the prescribed form for grant of a licence in Part II in Form VII for commencement of commercial production with a declaration that he has installed the plant & machinery, successfully carried out the trial run and is ready for commencement of commercial production. A declaration to the effect that the licensee has installed and applied the requisite quality control system for manufacture or proof test of firearms or ammunition, fully complied with the security guidelines as contained in the extant Security Manual of the MoD, for licensed defence industries. A list of particulars of the key technical personnel employed by the licensee for carrying out manufacture or proof-test facility along with the proof of their professional expertise & training undergone and identification documents is required to be submitted. The period of validity of Part II of the licence will be five years. The licensing authority may impose additional restrictions, e.g. in the form of closer supervision in licences to produce certain sensitive types of arms and ammunition, such as those configured for use by armed forces or those not permitted to be possessed by civilians.
Requisite Documents: The company applying for a licence in Form VII under these rules will be required to provide following documents:
- Original or certified copies of the company's founding documents including Memorandum and Articles of Association, Certification of Registration of the Company
- Under the Companies Act, 2013, CIN (Corporate Identification Number), proof of address of its registered office, PAN card and certified lists of directors and shareholders as on the date of application.
- Copy of Director Identification Number (DIN), identification proof, 2 recent photographs, copy of Aadhar Card and resident proof of all the directors & responsible persons.
- Copy of the latest balance sheet of the company and audited copy of the Net-worth Certificate duly certified by a Chartered Accountant.
- Estimated project outlay and means of finance for funding duly certified by a Chartered Accountant.
- Certified copy of the board resolution along with full particulars of the responsible person authorized to sign the same.
- Details of foreign control and/or ownership in the applicant company, as applicable, duly certified by a Chartered Accountant.
- The company applying for a license shall furnish the complete details of the arms and/or ammunition intended to be manufactured or proof-tested or both, including their types and quantities.
The capacity norms for manufacture of arms and ammunition will be fixed on 'case-to case-basis', keeping in consideration the financial & technical standing of the applicant Indian company and of the foreign collaborators. A copy of license granted shall forthwith be sent to the district magistrate of the place of manufacturing facility and the home department of the concerned State Government.
As per rule no 49 of DAA, provisions have been made for both fresh applicants and entities already holding licences.
Category A Manufacturers: Entities applying for fresh licences under the provisions of rules. The “Category A” applicant should be an Indian Company incorporated under the Companies Act, 2013 and should be owned and controlled by resident Indian citizens and Indian companies, which are owned and controlled by resident Indian citizens as per the provisions specified in the extant Foreign Direct Investment (FDI) policy in defence sector of the Government of India in the Ministry of Commerce & Industry, Department of Industrial Policy & Promotion and fulfillment of the extant FDI norms and FEMA regulations laid down by the Reserve Bank of India in this regard. The Chief Executive of the company should be a resident Indian and the management of the applicant company should be in Indian hands with majority representation on the Board excluding nominee or independent directors.
Category B Manufacturers: Entities or persons already holding manufacturing licences under the Arms Rules, 1962 in the form IX. They are eligible to apply for grant of a fresh licence in Form VII as per the norms prescribed under the rules for Category A manufacturers along with their experience and track record as arms and ammunition manufacturers. Further, they are eligible to apply for enhancement or restoration or revision or re-fixation or grant of backlog quota in the licensed capacities granted to these licensees as on the date of notification of these rules by filing a proposal in this regard with the MHA. The proposal shall be accompanied by the following documents
- Copy of the existing manufacturing licence.
- Certified copies of the annual accounts of the licensee for the last five years duly certified by a chartered accountant.
- Details of the plant & machinery and manufacturing facility.
- Certified copies of the stock records, manufactured items and sales turnover for the last five years duly certified by a chartered accountant.
- Detailed proposal for enhancement of manufacturing capacity, project outlays, means of finance and justification for economic viability and market demand projections for enhancement in capacity production duly certified by a chartered accountant.
- Track record and preparedness to comply with the Security Manual prepared by the Ministry of Defence, department of defence production for licensed defence industries.
- Declaration to comply with the provisions contained in the Arms Rules, 2015 for arms and ammunition manufacturers.
Separate licences shall be issued for each unit in case of an applicant company applying for a multi-unit facility for grant of a licence in form VII for manufacture or proof-test.
Category of Fire Arms
Arms for manufacture or proof test have been divided under following categories as per Rule 50:
- (a) Category I - Small Arms
- (b) Category II - Light Weapons
- (c) Category III - Items configured for military use
Provided that if any of the items falling under category I, II or III includes any prohibited arms or ammunition, the licensing authority shall obtain the mandatory prior permission of the Central Government under section 7 of the Act before grant of a licence in Form VII.
Marking of firearms and Ammunition
All firearms and individual ammunition will have unique marking applied to them, at the time of their manufacture containing the information as stipulated in Rule 57.
Proof Test of firearms
Category A manufacturer can set up a proof test facility for gun barrels or completed firearms, however, the facility needs to be located separately from its arms manufacturing unit, but within its premises. A separate proposal for the proof-testing facility is required to accompany the application for arms and ammunition manufacturing licence. The proposal will be examined by the MHA in consultation with the DGQA, MoD as per the guidelines laid down for manufacturing licence.
Category B manufacturers will be permitted to get their barrels or completed firearms proof tested either from the ordnance factories or other manufacturers having been granted proof test facilities under earlier rules.
Manufacturers may commercialize proof testing facilities but will be accountable to bear the additional responsibilities of security and disposal of waste (rejected barrels/completed firearms). The manufacturers holding a licence in Part II of Form VII will have to maintain the records and follow the procedure for proof test of gun barrels/completed firearms as per the provisions of arm rules
The Indian inventories of SAs are estimated to contain approximately 5-6 million small arms, approximately 1.6 million of these belong for defence including Coast Guard, 1.3 million to paramilitary and 1.5 - 2 million to police forces. Small arms have a life of approx 20 years and taking the overall requirement of SAs for the military and para-military forces to be approx 3.0 million, we need a production capability of approximately 1.5 lacs per year for the replacement cycle to ensure that our forces are always equipped with latest technology SAs. With an annual production capacity of approximately 0.90-1.0 lacs small arms of all types, the ordnance factories are unable to meet even the annual replacement requirement of the military, not counting the other civil requirements including Police Forces. Hence there is scope for private sector to come in to fill the gap.
The army is on the lookout for better and state-of-the-art weapons for its Infantry to replace/augment its existing holdings. It plans on equipping its 362 infantry battalions, over 100 counter insurgency units and Special Forces (SF) with a modular, multi-calibre suite of small arms through imports and local licensed manufacture in one of the world's largest such contracts worth Rs 38500-44000 Crores ($7-8 Billion). In addition there will be recurring requirement of Ammunition, used for stocking and training.
Recently, the Indian army has retracted the four year old tender for purchasing 1.8 lakh weapons worth Rs 4,848 Cr from the four short-listed international firms- Beretta of Italy, Israeli Weapons Industries (IWI), Colt Defense of the US, Ceska Zbplojovka of Czech Republic. This contract was floated in 2011 for the supply of Multi-Caliber Assault Rifles (MCAR) for the Army and the Navy to replace the existing INSAS rifles. An initial 65,678 assault rifles and 4,680 under barrel grenade launchers were to be procured off the shelf for Rs 2,500 Cr. With over 1 lac more rifles to be built by the Ordnance Factory Board through technology transfer, it was the world's largest such rifle contract. This was also one of the 20 'critical requirements' for the Army. Private industries may now have the opportunity to participate in manufacture these weapons worth Rs. 5000 Cr, with the proposed amendments.
The private sector is primarily engaged in the manufacture of single and double-barrel and air rifles/pistols. This has resulted in a situation where the military is dependent on foreign suppliers for most of its requirements, especially in areas of critical technologies and the nation has to spend billions of dollars on small arms import. The volume of major weapons imports have more than doubled between 2004-08 and 2009-13 and India is still struggling to upgrade its arms manufacturing sector, despite this being a priority for over a decade. However, with the implementation of the new arm rules as projected by MHA for the participation of private industries in arms manufacturing is likely to bring high tech SAs indigenously and will help the nation to become self reliant in this sector.
The market opportunity for small arms is bound to grow keeping in mind that the Ordnance Factories with an annual production capacity, barely meet the annual replacement requirement of defence services. The same also goes for matching requirement of Ammunition. Hence, the scope for private sector to fill the gap to the tune of 50% Level to OFB production capacity.