NEW DELHI — After one year of deadlock in India over the issuance of industrial licenses to private sector defense companies, the government has reverted back to a previous arrangement in which the Department of Industrial Policy and Promotion, or DIPP, will grant licenses, in place of the Ministry of Home Affairs, according to a senior Ministry of Defence official.
However, analysts say the departmental change will do little in improving the private sector production process of defense weapons and could even further add to the confusion.
The change was prompted by delays and confusion over the issuing of licenses, as the Ministry of Home Affairs was the sole entity in charge of granting licenses for the private sector production of weapons.
"While the immediate logjam about the authority competent to issue the licenses has been resolved, other issues have cropped up, largely because of the conditions subject to which DIPP will exercise this authority," said Amit Cowshish, a former financial adviser for the MoD.
Bhupinder Yadav, a defense analyst and retired Indian Army major general, called the situation a "mess" that came about after the Arms Act 2016, when the Ministry of Home Affairs, or MHA, insisted that industrial licenses for all defense items be issued by MHA.
There was further confusion, as "MHA raised questions over the fate of over 300 industrial licenses for defense manufacturing issued by the DIPP over [the] last few years, whether companies already issued licenses have to apply anew," Yadav said.
India opened the defense manufacturing industry to the private sector in 2001 and issued 300 licenses. However, the production rate of weaponry among private companies proved to be low compared to that of state-owned firms. Analysts believe the departmental licensing change will not affect the current output situation.
"The delegation (to DIPP) will at best be cosmetic. The real problems of defense manufacturing in the private sector lie elsewhere," said Vivek Rae, a former director general for acquisition at the MoD.
Regarding the low level of defense production among private firms, Jayant Damodar Patil, head of Larsen & Toubro's Defense & Aerospace division, said: "Compared to the state-owned companies, the size of Indian private sector is negligible. Doing away with nominations to public sector and providing equal opportunity to Indian private sector is essential to widen the defense industrial base in the country."
The licensing delay halted efforts by companies seeking overseas partners for joint ventures, Yadav said. "Companies aspiring to respond to defense projects or finding a joint venture or funding partner were at [a] disadvantage while negotiating with [a] foreign partner, as they naturally felt comfortable to deal with one who had [an] industrial license."
However, both Rae and Cowshish agree that, in the words of the former: "The new procedure is unlikely to have any impact on [foreign direct investment]."
Vivek Raghuvanshi is the India correspondent for Defense News.
