The Telegraph
Since 1st March, 1999
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Licence to make arms

New Delhi, Dec. 29: The Union defence ministry has cleared the first licences to the private sector after throwing open lethal arms manufacture to industry. Licences for six product categories have been cleared for Larsen & Toubro and the Mahindras.

The licensing authority is the department of industrial policy and promotions. But under the new policy, the defence ministry’s clearance is mandatory for issuing licences for production of lethal equipment.

Larsen & Toubro is likely to be licensed to produce munitions, equipment for warships, small arms, missiles and torpedoes. The Mahindras, who have floated an outfit called Mahindra Defence Systems, will produce combat vehicles.

The ministry of defence is cagey about giving details on the exact nature of the equipment for which it has approved the licences. Only product categories have been identified. Both Larsen & Toubro and the Mahindras have been long-standing suppliers of defence equipment through the Defence Research and Development Organisation and the Ordnance Factory Board.

Larsen & Toubro has built and supplied ship and land-based missile launchers and the Mahindras armoured and ruggedised vehicles.

Earlier this year, the guidelines issued by the department of industrial policy and promotions in consultation with the ministry of defence under the new defence industrial policy, had made it clear that applicants for licences would have to show evidence of capability to service the armed forces.

The granting of licences to Larsen & Toubro and the Mahindras is exemplary because it is an indication of the direction in which the defence establishment wants to nudge industry, after having condescended to throw open the sector following intensive lobbying by the Confederation of Indian Industry (CII).

Both industry and government representatives are still in the process of ironing out glitches in the policy and its implementation. Indian companies, particularly, are worried that as the government has also lifted the bar on arms agents, foreign suppliers can also sell directly without having to depend on the national industry.

The CII has been emphasising that rules under the policy should be framed in a way that foreign manufacturers are nudged towards opening joint ventures or entering into technical collaboration with Indian firms. The defence industrial policy allows 100 per cent investment for Indian firms with 26 per cent foreign direct investment.

“The ratio of defence supplies to the forces currently is 70:30, that is 70 per cent of the supplies are of foreign origin and 30 per cent Indian. We want this to be reversed to 70 per cent Indian,” a CII official actively involved in the deliberations said.

On its part, the defence establishment is working on procedures to make supplies from private industry foolproof. The focus is on ensuring a system to verify removal of goods from the plants of private manufacturers. Industry is understood to have agreed to the posting of units of the Defence Security Corps.

that mans facilities of the Ordnance Factory Board and strategic installations.

The government is also considering requests from industry to allow sale of its products to paramilitary forces and state police.

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