DPIIT provides clarity on defence manufacturing

India’s foreign direct investment (FDI) policy sets out the restrictions applicable to investments in the defence sector and makes it applicable to the defence industry subject to industrial license under the Industries (Development & Regulation) Act, 1951, and manufacturing of small arms and ammunition under the Arms Act, 1959. Since the liberalization of the FDI regime in the defence sector in early 2001, what exactly constituted defence has been a topic of heated debate. In an unprecedented move, the Department of Promotion of Industry and Internal Trade (DPIIT), formerly the Department of Industrial Policy and Promotion, detailed what exactly constitutes “defence” by way of press note 3 of 2014 (PN3).

PN3 entailed a specific list of defence items, the manufacturing of which would require an industrial licence under the Industries (Development & Regulation) Act, 1951 (IDRA). Significantly, PN3 also explicitly stipulated that items not included in the list, and dual-use items, other than those specifically mentioned in the list would not require an industrial licence for defence purposes.

On 9 October 2014, the DPIIT clarified that manufacturing only those defence items that had been specifically mentioned in the list annexed to PN3 would require an industrial licence. Items, parts, components, castings, forgings and test equipment not forming part of the annexed list would not require an industrial licence.

Kanishk is a partner and Divpriya Chawla is an associate at Shardul Amarchand Mangaldas & Co.

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