Defence - DIPP Clears 33 Defence Proposals; Sector Update :: Edelweiss PDF link

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In a push to the government’s ‘Make in India’ initiative, the Department of Industrial Policy and Promotion (DIPP) has cleared 19 proposals for grant of industrial licence, which includes applications for defence production. Clarity in policy and higher FDI for defence (up from 26% to 49%) helped clear these proposals, many of which were languishing for several years. Licence validity has also been increased from 2 to 3 years. Additional 14 proposals also got the go ahead, as the requirement of industrial licence for manufacturing certain defence components was dropped recently by the government. In fact, critical items requiring licence have been reduced to mere 16, classified as ‘defence items’. The above clearances will be notified shortly. The new government has taken series of measures to facilitate the ease of doing business in India. The current step to clear 33 proposals will lend major boost to advanced manufacturing in the defence sector and further the ultimate goal of indigenous manufacturing in defence, encouraging the private sector.

19 industrial licences cleared for defence; validity upped to 3 years

DIPP has cleared 19 proposals for grant of industrial licence for the manufacture of defence products. Clarity in policy and increase in FDI in defence helped clear these proposals. Reliance Aerospace Technologies, Bharat Forge, Mahindra Telephonic Integrated Systems, Mahindra Aero Structure, Punj Lloyd Industries and Tata Advanced Materials are amongst the players who have received licence for defence production. Validity of this licence has been increased to three years from two years earlier. DIPP also delved on the possibility of lifting the stipulation of annual capacity in the licence in addition to permitting sale of licenced items to other entities.

Delicencing in defence manufacturing helps clear 14 proposals

To promote higher indigenous production in defence, the government in June 2014 delicenced several defence items, including parts, components, castings, forgings, etc., which will not require industrial licence. Similarly, dual use items having military as well as civilian application (unless classified as defence items) do not require licences. The move will help both the domestic and international companies to undertake manufacturing without going through the tedious process of obtaining a licence. The requirement of licence has now been restricted to 16 critical defence systems and subsystems. Accordingly, 14 proposals have been cleared as the requirement of licence is not applicable for their products.

Positive for India’s defence sector

Given that opportunities in the domestic defence space is very large which the private sector cannot afford to miss, delicencing for defence manufacturing and grant of industrial licence to major defence products will lend the much required fillip to the advanced defence manufacturing in India. We continue to like Bharat Electronics and Astra Microwave in this sector and have a ‘BUY’ rating on both the stocks.

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