January 04, 2002
'17'
GUIDELINES FOR LICENSING PRODUCTION OF ARMS
& AMMUNITIONS
PRESS NOTE
In
pursuance of the Government decision to allow private sector participation up to 100% in
the defence industry sector with foreign direct investment (FDI) permissible up to 26%,
both subject to licensing as notified vide Press Note No. 4 (2001 series), the following
guidelines for licensing production of arms and ammunitions are hereby notified:
- Licence applications will be considered and licences given by the Department of
Industrial Policy & Promotion, Ministry of Commerce & Industry, in consultation
with Ministry of Defence.
- Cases involving FDI will be considered by the FIPB and licences given by the Department
of Industrial Policy & Promotion in consultation with Ministry of Defence.
- The applicant should be an Indian company / partnership firm.
- The management of the applicant company / partnership should be in Indian hands with
majority representation on the Board as well as the Chief Executive of the company /
partnership firm being resident Indians.
- Full particulars of the Directors and the Chief Executives should be furnished along
with the applications.
- The Government reserves the right to verify the antecedents of the foreign collaborators
and domestic promoters including their financial standing and credentials in the world
market. Preference would be given to original equipment manufacturers or design
establishments, and companies having a good track record of past supplies to Armed Forces,
Space and Atomic energy sectors and having an established R & D base.
- There would be no minimum capitalization for the FDI. A proper assessment, however,
needs to be done by the management of the applicant company depending upon the product and
the technology. The licensing authority would satisfy itself about the adequacy of the net
worth of the foreign investor taking into account the category of weapons and equipment
that are proposed to be manufactured.
- There would be a three-year lock-in period for transfer of equity from one foreign
investor to another foreign investor (including NRIs & OCBs with 60% or more NRI
stake) and such transfer would be subject to prior approval of the FIPB and the
Government.
- The Ministry of Defence is not in a position to give purchase guarantee for products to
be manufactured. However, the planned acquisition programme for such equipment and overall
requirements would be made available to the extent possible.
- The capacity norms for production will be provided in the licence based on the
application as well as the recommendations of the Ministry of Defence, which will look
into existing capacities of similar and allied products.
- Import of equipment for pre-production activity including development of prototype by
the applicant company would be permitted.
- Adequate safety and security procedures would need to be put in place by the licensee
once the licence is granted and production commences. These would be subject to
verification by authorized Government agencies.
- The standards and testing procedures for equipment to be produced under licence from
foreign collaborators or from indigenous R & D will have to be provided by the
licensee to the Government nominated quality assurance agency under appropriate
confidentiality clause. The nominated quality assurance agency would inspect the finished
product and would conduct surveillance and audit of the Quality Assurance Procedures of
the licensee. Self-certification would be permitted by the Ministry of Defence on case to
case basis, which may involve either individual items, or group of items manufactured by
the licensee. Such permission would be for a fixed period and subject to renewals.
- Purchase preference and price preference may be given to the Public Sector organizations
as per guidelines of the Department of Public Enterprises.
- Arms and ammunition produced by the private manufacturers will be primarily sold to the
Ministry of Defence. These items may also be sold to other Government entities under the
control of the Ministry of Home Affairs and State Governments with the prior approval of
the Ministry of Defence. No such item should be sold within the country to any other
person or entity. The export of manufactured items would be subject to policy and
guidelines as applicable to Ordnance Factories and Defence Public Sector Undertakings.
Non-lethal items would be permitted for sale to persons / entities other than the Central
or State Governments with the prior approval of the Ministry of Defence. Licensee would
also need to institute a verifiable system of removal of all goods out of their factories.
Violation of these provisions may lead to cancellation of the licence.
- Government decision on applications to FIPB for FDI in defence industry sector will be
normally communicated within a time frame of 10 weeks from the date of acknowledgement by
the Secretariat for Industrial Assistance in the Department of Industrial Policy &
Promotion.