India’s overseas direct funding (FDI) policy units out the regulations relevant to investments inside the defense area and makes it relevant to the defense industry problem to industrial license under the Industries (Development & Regulation) Act, 1951, and production of small fingers and ammunition underneath the Arms Act, 1959. Since the liberalization of the FDI regime within the defense quarter in early 2001, what exactly constituted defense has been a topic of heated debate. In an unprecedented move, the Department of Promotion of Industry and Internal Trade (DPI), previously the Department of Industrial Policy and Promotion, distinct what precisely constitutes “defense” by way of press note three of 2014 (PN3).


PN3 entailed a specific listing of defense items, the producing of which might require a business license underneath the Industries (Development & Regulation) Act, 1951 (IDRA). Significantly, PN3 additionally explicitly stipulated that gadgets not covered inside the listing, and twin-use objects, other than the ones particularly cited in the listing could no longer require a business license for defense purposes.

On 9 October 2014, the DPI clarified that manufacturing simplest the ones defense objects that had been specifically noted in the listing annexed to PN3 could require an industrial license. Items, components, additives, castings, forgings and test equipment no longer forming part of the annexed list might not require an industrial license.

Prior to the issuance of PN3, the industry struggled from regulatory uncertainty. It becomes unclear to the enterprise, in addition to felony practitioners, whether or not production even minor parts and components of defense device, or daily use gadgets that might be utilized by defense force, might attract the regulations applicable to the defense sector. PN3 cleared the muddied waters and liberalized the licensing regime underneath the IDRA.

However, the respite grew to become out to be brief-lived. The Arms Rules, 2016, introduced on 15 July 2016, examine with a notification dated 19 May 2017, clarified that the applicability of the IDRA changed into significantly confined, and now this area became to be ruled by using an extra-stringent statute, the Arms Act.

The Arms Act, which governs the producing and sale of “arms and ammunition”, units out a miles more laborious and stringent licensing regime, compared to the IDRA. In any case, it became usually questionable how sure gadgets together with balloons, parachutes, and gliders may be labeled as “arms and ammunition” and taken underneath the Arms Act. Additionally, the exemption from obtaining a business license for the producing of objects, parts, additives or check device provided underneath PN3 become effectively taken away through virtue of the May notification.

As expected, this became a jolt to investor self-assurance, because it only added extra obstacles in mission production of the defense system in India. At least partially because of the representations made with the aid of the enterprise, a rationalization was issued by the Ministry of Home Affairs (MHA) on 22 September 2017, which effectively stated that production of “non-strain bearing” elements or components did now not require a license below the Arms Act. Although beneficial, without an amendment to the notification, it becomes difficult to read the two harmoniously.

The notification has now successfully been superseded with the aid of a subsequent notification of the MHA, dated 14 December 2018, through which the manufacturing of “defense plane” and “warships of a wide variety” has been taken out of the ambit of the Arms Act.

Pursuant to this notification, in a circulate to foster boom of funding within the defence region, the DPI, via press word 1 of 2019 (PN1) has clarified that production of defense plane, warships and allied objects of defense device, as specified in Annexure I of PN1, would now require a commercial license beneath the provisions of the IDRA. So those objects have been taken out of the rigorous and arguably onerous licensing regime underneath the Arms Act.

Importantly, PN1 also clarified the types of defense aircraft that fall underneath the industrial licensing regime, by using expressly mentioning that “UAV or unmanned airships’ designed for managed flight inside or out of the direct herbal vision of the operator” are excluded from such categorization. However, PN1 has no longer expressly reiterated the erstwhile exemption applicable to the production of items, elements, additives or take a look at equipment underneath the industrial licensing regime.

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