Search the Internet          Tips  Sites: Finance, Investment

Panel to oversee sale of defence equipment on anvil

Partha Ghosh

After opening up the defence sector to 100 per cent private participation, including 26 per cent foreign direct investment, the government is now in the process of setting up a regulatory committee consisting of representatives from the ministry of defence and the armed forces to oversee and control production and sale of equipment.

The government is also laying out several criteria, such as minimum capital base of applicant private companies (as is applicable in telecom sector) and previous track record in defence supply to the armed forces and government agencies, to be considered eligible for manufacturing licenses. An announcement will be made shortly.

"We need to set up a suitable institutional mechanism to consider application from private players, both Indian and foreign, and grant of licenses to these companies," a government official said.

He said that the authority for licensing and regulation of manufacture and sale will rest with the industry ministry (the licensing department) which will consult the ministry of defence on all related issues and cases.

Serious checks and balances will be maintained considering the strategic nature of the business, the official added. "The sensitivity of the sector called for a cautious opening for FDI, and the entry of foreign capital through the FIPB route," he said.

Following the Cabinet clearance, the private sector manufacturers have been allowed in the defence sector and arms and ammunition and allied items of defence equipment, defence aircraft and warships have been removed from the reserved category (for public sector) and transferred to the licensed category.

However, all applications for investment in defence manufacturing will be scrutinised by both the industry as well as the defence ministry. Management control will remain with Indian promoters and foreign equity cannot exceed 26 per cent.

All manufacturing companies will be required to have a controlled and verifiable system of removal of all goods out of their factories.

The government is establishing detailed modalities for the purpose. Sources also said that besides meeting a minimum capital base requirement, the applicant company should have a good track record of past supplies to the Armed forces, Space and Atomic Energy sectors and also have established a research and development (R&D) base.

Also before grant of licences, existing capacity and likely requirements would be assessed in consultation with the defence ministry. The officials added that keeping the security of the country in view, the regulations will be worked out in consultation with the defence ministry.

Powered by

YOU MAY ALSO WANT TO READ:
The Rediff-Business Standard Special
The Budget 2001-2002 Special
Money
Business News

Tell us what you think of this report