Compliances Needed to Start a Defence Products Manufacturing Business in India
In recent years, Russia has been the largest importer of Defence Products in India. Hence to enable the manufacturing of products domestically.
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Introduction: Defence Products
In recent years, the Indian government has intensified its efforts in support of the Make in India Initiative, a project which was introduced to promote foreign investment in India and boost domestic manufacturing and employment. India's defense industry, which lays down clear strategic goals, has been a significant focus for indigenization. Recently, some sector-specific regulatory initiatives have been implemented to advance the Make in India initiative focusing more on the defense industry. The ultimate aim of enhancing the industry is to establish self-reliance and progress.
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India is proudly owning one of the strongest armies in the world. In order to maintain the stand, the country needs to provide the army with exceptional equipment as well as ammunition. In recent years, Russia has been the largest importer of Defence Products in India. Hence to enable the manufacturing of products domestically, the Government of India encouraged people to produce as a part of the Make in India initiative. The Arms Act of 1959/Arm Rules of 2016 and the Industries (Development and Regulation) Act of 1951 both regulate manufacturing in the defense sector through industrial licensing. Prior to 2001, only public sector businesses could manufacture for the defense industry. However, in 2001, the Government permitted the Indian private sector to participate 100% in the production of defense goods, subject to license.
What Are The Kinds of Defence Products?
The Ministry of Defence classifies Defence Products to be divided into 3 categories. They are A, B and C. If a company is involved in the production of defense products that fall under more than one category, it should either clearly separate the manufacturing and operational areas for each category of product and follow the relevant security instructions, or if this is not possible, it should follow the security guidelines for the higher level of security.
- Category A:- The products in this category would be extremely sensitive and classified in terms of security, and their production would demand the highest level of protection. Explosives, propellants, propulsion, airplanes, battleships, battle tanks, radars, weaponry, software, and many forms of charges are a few products of defence that fall under this category.
- Category B:- Semi-finished goods, sub-assemblies, sub-systems of primary weapons, equipment, and platforms, as well as some finished goods with a lower level of sensitivity, would fall under this category. Wing assemblies, structural assemblies, barrel assemblies, turrets, avionics, etc. are some examples of products falling under this category that serve as illustrations.
- Category C:- This category would comprise items that are fairly broad in nature and do not use any secret or protected information. The products in this category are typically not customized or specifically built for military use, necessitating only the barest of security measures. Sub-assembly components, sheet metal components, all other C-class items, and consumables are exemplary examples of the products that fall into this group.
What is The Procedure for Registration of a Defence Products Manufacturer?
To define a comprehensive production infrastructure for the country's defense, manufacturing facilities are required to be registered. Numerous production facilities, along with the assistance of Defense Public Sector Undertakings, Public Sector Undertakings, and private businesses, have made a significant contribution throughout time to our Nation's ability to produce Defense Stores on its own.
- General Registration
- Registration against RFP
- Renewal of Registration
- SCAGE/NCAGE Registration
- Self-Certification
- Award of Green Channel Status
What Compliances Need To Be Followed To Start A Defence Product Manufacturing Business?
The Ministry of Defence established a committee to examine and further liberalize the licensing procedure and evaluate the list of products requiring an industrial license from defense items in accordance with the goal of guaranteeing ease of doing business. The Ministry of Home Affairs (MHA) and the Ministry of Commerce & Industry, Department of Industrial Policy & Promotion received the committee's conclusion (DIPP). To produce a high-quality product, a company must meet all the requirements of good manufacturing practices. Thus, only orders of 100% or 80% should be placed with developed merchants. For the 20% order, undeveloped vendors should be identified. Following is a list of all the necessary steps a manufacturer of defence products needs to follow-
Industrial License
The Industrial License is issued by the Department of Industrial Policy and Promotion (DIPP). An Industrial License will be required for the manufacture of a certain kinds of Defence items.
Items that mandatorily require an industrial license are-
- Tanks and armoured vehicles used during fight
- Defence and Space aircrafts along with their parts
- Any vessels of War on the surface or underwater
- All ammunitions and Arms; allied items of Defence
Within a year of getting their licenses, businesses that have already started producing defense products must deploy the necessary security systems.
Read Our Blog: Industrial License and Registration in India
Procedure to Renew Industrial License
- Initial validity of an Industrial License, will be for a period of three years.
- Up until the start of commercial production, the Licensee must submit progress report form G every six months. (The Industrial License comes with Form 'G')
- There is no need to request for a validity extension if the licensee starts producing commercially during the validity period.
- If the licensee doesn't start commercial production within the initial validity period, they can apply directly to the relevant administrative ministry for an extension of the industrial license's validity since the relevant administrative ministry handles the extension of the industrial license's validity.
- The entire duration of validity of the industrial license will be seven years, within which the commercial production must begin. The licensee may apply twice for extensions of validity for periods of two years each.
- The license would become void if the commercial production was not started within this time frame.
The following items would not require Industrial License:
- Dual use items, having military as well as civilian applications
- Items/ parts/ components/ castings/ forgings/ test equipment, which are not part of the defence products list issued vide Press Note 3 (2014 Series)
- An undertaking to the MHA/MOD/DIPP must be made in order to show the compliance of rules as per the provisions of the Security Manual.
- Adherence to the security manual laid down by the Ministry of Defence.
- The Indian License Defence Company (ILDC)-
Before starting to manufacture defense items, the Indian Licensed Defense Company (ILDC) must certify that it will abide by the Security Manual's rules. In order to protect the security of the materials and finished products used in all stages of production activity up until the finished products are finally delivered/handed over to the authorized agency, the ILDC shall simultaneously take steps to create the security mechanism and apparatus in its production/manufacturing facility fully meeting the security standards prescribed in this Security Manual.
- An Annual Cyber Security Audit for Cat-A & B. Cat-C shall be submitted in case of classified information.
The Category A and B ILDCs must undergo an annual cyber security audit. A Third Party from the list of qualified Cyber Security Auditors issued by Computer Emergency Response shall conduct this Cyber Security Audit.
- A quarterly Report on the Visitors of a foreign business.
- On the 31st March of every year, a self-certification on the compliance to Internal Security Audit shall be submitted.
- A quarterly report on the Loss/recovery/unearthed Arms & Ammunition and Explosives shall be submitted.
- A detailed report in case of any Fire accidents & other incidents / accidents to the (Intelligence Bureau) IB.
- A Report shall be submitted to the IB/MHA/DDP on compliance with observations of Internal and External Audit.
Performing internal security audits, including that of the head office in the case of a multi-facility organization, at least twice a year to determine the degree of adherence to the security guidelines and practices outlined in this security manual
- An extensive report to the MHA, from a security perspective, a list of employees cleared.
- Every 6 (six) Months an Internal Inspection Reports of Manufacturing Facilities shall be submitted.
What is the Penalty for Non-Compliance?
Action must be taken against the ILDC or an individual person if it fails to follow security requirements in accordance with applicable government provisions in several Acts, such as the IPC, CRPC, IDR Act, OSA, 1923, etc. According to the relevant articles of the Official Secrets Act of 1923, the ILDCs are also subject to legal action if any security breach compromises national security or national interest. The ILDC would be required to return all classified information and materials in its possession to the rightful owner or Ministry of Defense as the case may be, within 24 hours of such suspension or cancellation of the industrial license, completion of projects or procurement, or foreclosing of the unit.
About the Author
Fatima Baig
Legal Content WriterA Post Graduate in the field of Corporate and Commercial Laws. I have worked as a freelance content writer for several Legal topics for over 5 years. I aspire to learn and grow in this field along with being able to portray my Legal skills through writing.
