Published Editorial

To meet current demand for small arms, private sector has a big role to play

August 2016

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ET Now

By

Ankur Gupta

Vice President - Aerospace & Defence, EY India

ET Now: How soon do you see small arms manufacture by private companies being implemented and will it be a long drawn process?

Ankur Gupta: Way back in 2009, the government came out with the proposition of letting private sector actually participate in small arms manufacturing for the first time. They circulated a draft note. Unfortunately that was not executed for several reasons. A new draft mode was then circulated in the first quarter of last year and we were expecting a turnaround much sooner but this is good. This has happened somewhere in the middle of last month.

This is traditionally undertaken through the department of industrial policy and promotion under the ministry of commerce that is the route which is used for all regulated sectors. In the arms rules of 2016, we see that as far as small arms are concerned, it will be under control of the ministry of home affairs. If you see the forms which have been made a part of the arms rule, they are to be signed by joint secretary. So I think it will take a while for it to get it running on the ground because we will have to see that who are officials, who are officers, what kind of forms, what kind of attachments, etc., that need to be given. So although it is good news that the arms rule has finally come around but how soon it can be put into action and private companies can apply and we see some action on the ground is a question.

ET Now: Also in terms of the companies that are likely to benefit, be it the Tata Group, Punj LloydBSE -3.02 % or Bharat ForgeBSE 1.94%, I would like to which company do you see potentially benefitting the most from the new changes to the arms rule 2016.

Ankur Gupta: The government is regulating a list of all the companies which have a valid industrial licence. As of date, there are 342 Indian companies which have a defence industrial licence. If you just see that list, there are three companies today which have a specific licence for small arms and ammunition.

The first is Mahindra & Mahindra. They were issued that licence somewhere around 2005. The next is Max Aerospace which was given a licence for arms and ammunition in 2006 and the third company is Indtech and it is based out in Madhya Pradesh again for small arms and ammunition. So these three companies obviously already have a valid licence. If you look at who all have evinced interest lately in this sector, I think all of the names that you just took have either done some MOU or they have done joint ventures.

For example, Bharat Forge has a joint venture which was approved by the government with a company called Rafael. They also have a pending industrial licence application for small arms. I think all the large industrial houses have made or are starting to make moves to address this. I mean if you just look at the size of the market, EY regularly takes out a quarterly defence news that are called the eye on defence and last year June, we had done dedicated piece on small arms. So the total current holding of the military and the paramilitary forces is roughly three million hand-held weapons. The annual production capacity of the government entities today is roughly about a 100,000.

If you take a small arm life of about 20 years, then add 100,000 production capacity to replace all three million pieces, it will take the entities today 30 years and I am not quite sure if that is an acceptable level of turnaround. So just to meet the current demand, not looking at exports, not looking at future contingencies just to replace the weapons that are military and are paramilitary forces have today, the private sector has a very, very big role to play.