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DEFENCE IL- BACK TO SQUARE ONE

The process of issue of Industrial Licence for manufacturing of defence equipment has been in a mess for over a year. The files of pending cases of IL have been tossing around with DIPP and MHA and almost equal numbers of applications which were filed in e-biz portal were summarily scraped. It certainly does not amount to 'Ease of doing business'.

Indian government's initiatives of “Make in India” and “Ease of Doing Business” seem to be with unplanned path, where targets are determined but the path is not. The recent process regarding issue of Industrial Licence for defence equipment is one such example. The process of grant of IL had stabilised since early 2000 and online filing of Industrial License (IL) was introduced in 2014 to provide single-window, transparent and integrated electronic services to industries.

            The development subsequent to the notification of Arms Rule 2016, the process of issue of IL, has been in a mess. The items configured for Military use have come under purview of Arms Rules 2016. Abrupt change in the IL process through a notification on 15 July 2016, took away the licensing powers from DIPP and Ministry of Home Affairs becomes the body to issue licence for defence items. Hence, no further processing of Industrial License application pertaining to Defence Sector were considered in Department of Industrial Policy & Promotion (DIPP). The applicants were asked to apply directly to Ministry of Home Affairs under Arms Rules 2016 for obtaining manufacturing licenses for Defence Items.

            The derailment of process created a logjam for over a year because MHA is not focused on promoting industries. The case files of about 94 cases of IL have been tossing around with DIPP and MHA and almost equal numbers of applications which were filed in e-biz portal were summarily  scraped by them.

            After almost a year of confusion, recently MHA issued a notification no S.O. 1636 (E) dated 19.05.2017, where it again delegated the power to issue IL to DIPP. As per notification  Ministry of Home Affairs delegates powers and functions under sub-section (1) of Section (5), clauses (b) and (c) of Section 7 and Chapter-III of Arms Act, 1959 have been delegated to Secretary, Department of Industrial Policy and Promotion in respect of defence items included in the Schedule. Consequently, power to grant manufacturing license in respect of the category of arms and ammunition and defence items as per columns (2) and (3) of Schedule to the said Notification has been delegated to Secretary, DIPP. Department of Industrial Policy and Promotion will now process the applications for grant of license for manufacture of defence items included in the said Notification.

            The power delegated by the May 19 notification to the Secretary, DIPP are subject to the conditions that s/he will be subject to the supervision and control of the MHA in regard to exercise of the delegated power and that s/he will observe the policies and instructions laid down by MHA and “not enunciate any new policy or issue instructions in relation thereto without” its prior consent. The notification also says that the central government may revoke the delegation of power if such a course of action becomes necessary in the public interest.

            It is not clear what was intended to achieve due to change in policy. Even earlier also DIPP  used to circulate the applications it had received, to the Administrative Ministry (MoD in this case), State Governments concerned and MHA. In case MHA had any observations it could still provide to DIPP. After the receipt of comments from all concerned, the proposals are discussed in the Licensing Committee of DIPP and a decision to grant IL is taken in consultation with all stakeholders, including MHA.

            Now the interested Entrepreneurs/ Industries/Companies are requested to apply in Form A-6 of Arms Rules 2016 in 15 copies along with details and enclosures as mentioned in the Arms Rules 2016 to the Senior Development Officer (Industrial License), Department of Industrial Policy and Promotion, Industrial Licensing Section, Udyog Bhawan, New Delhi. Online filing of IL application on E biz portal of DIPP which was working well for IL has been ignored.  So number of trips to Udhyog Bhavan with more than 20 kg of paper load, does not fit in ease of doing business.

Issues Needing Clarification

The development raises more questions than it provides answers and some of the points of difference:

  • What has been achieved by the flip flop? The objective of Arms Act, and Industrial Development are different and there was no reason to disturb the status quo. Surprisingly MHA, which is neither concerned with external defence nor with industrial development. There seems to be no clear logic of giving an overarching role to the MHA as regards formulation of policy or grant of industrial licence for manufacture of defence items.
  • In case one peruses the past record of last 10 years, MHA and its allied agencies took maximum time in sending their recommendation, to DIPP in IL cases.
  • During the period between January 2001 and June 2016, as many as 342 licenses were issued by DIPP for manufacture of items by the defence industry. The whole process seeding the doubts on the fate of the licenses already issued, will these cases be freshly reassessed or be considered valid as they are?
  • Companies are also concerned about the fate of about 94 applications pending with breakup starting from 2013 till the process stopped in June 2016 due to the MHA-DIPP impasse. Interestingly almost all of these cases were awaiting MHA recommendations. Recently, DIPP has informed them to apply fresh in the new format as per Arms Act. The format is silent on some of the aspects relevant to IL.
  • According to the new guidelines, licences can no longer be obtained with an online process and by triggering this notification Industry is disheartened by the return to slow process and companies will have to submit 15 physical copies of a new form including details and several enclosures to initiate the application process for industrial licences.

Products in Vague

In the recently promulgated notification, the list of products requiring an IL for manufacturing have been reduced and  some of the eliminated products list is produced below;-

  • Electronic Equipment used for electronic counter-measure (ECM) and Electronic Counter Counter-Measure (ECCM), surveillance, intelligence, Command and Control systems, Global Navigation Satellite Systems (GNSS) jamming equipment. Data processing, storage and transmission security equipment, identification and authentication equipment (including identification Friend or Foe and non-Cooperative Target Return Identification systems), guidance and navigation equipment. Troposcatter-radio communications equipment and Military Information Security assurance systems and equipment (like cryptographic devices including military Cryptographic key management and Cryptanalytic systems), communication equipment, frequency modules and secrecy devices, specially designed for Military use.
  • Armoured or protective equipment as follows:-
    • ­ Constructions of metallic or non-metallic materials, or combinations thereof, specially designed to provide ballistic protection for military systems
    • ­ Body armour or protective garments of level-III (NIJ 0101.06, July 2008 or national equivalent and above).
  • Specialised equipment for military training or simulators specially designed for training in the use of any firearm or weapon.
  • Imaging or countermeasure equipment, as follows, specially designed for military use:-
    • ­ Recorders and image processing equipment;
    • ­ Image intensifier equipment;
    • ­ Infrared or thermal imaging equipment;
    • ­ Imaging radar sensor equipment;
    • ­ Countermeasure or counter-counter measure equipment

Miscellaneous: Concealment and deception equipment specially designed for military application, including but not limited to special paints, decoys smoke or obscuration equipment and simulators, and Metal embrittling agents

            As a result, another issue of concern is that a number of items that were on the previous licence list find no mention in the new policy. There is no clear information from ministry regarding these products as Press Note 3 has not been repealed. The issue needs clarification whether these products can now be manufactured without any industrial license thereby obviating the requirement of any government approval for such manufacturing activity or is another process going to be defined for them.

 

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