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Business Standard

Defence ministry weighs licensing reform; DAP 2020 revision by Nov-end

Defence Secretary Rajesh Kumar Singh calls on private sector to scale up R&D and capital equipment investment while assuring full govt support A more expeditious industrial licensing process in defence is among the suggestions being considered as part of reforms to further enhance competition and private-sector participation in the sector, a government source told Business Standard. This was a day after Defence Secretary Rajesh Kumar Singh underscored the importance of disruptive reforms in licensing and ease of doing business to break down entry barriers in defence manufacturing and support grassroots investors. The revision of the Defence Acquisition Procedure (DAP) 2020 document, aimed at streamlining the defence procurement policy, will be completed within six months — by the end of November — added the source. In line with the decision of the Ministry of Defence (MoD) to observe 2025 as the 'Year of Reforms', a committee under the Additional Secretary and Director General (Acquisition) is driving procedural reforms in DAP 2020. The reforms aim to eliminate redundancies and make the acquisition process more efficient in meeting the needs of the armed forces, while also addressing the pain points of the defence industry, including private firms. Addressing industry leaders at the annual business summit of the Confederation of Indian Industry (CII) in New Delhi, the defence secretary had described the defence industry as the last vestige of the licence permit Raj — because it continues to have industrial licensing under the Industrial Development and Regulation Act. 'This means all the ills of the licensing Raj in terms of delays — getting a licence, which should take six months, takes one to two years, given the need for clearances from the Department of Defence Production, security clearance from the Ministry of Home Affairs, and from the state's Home Department.' Noting that policymakers increasingly recognise that reducing entry barriers and expanding the industrial base are crucial in an era of disruptive technological change, where incumbency may not withstand innovation from upstart firms in modern warfare, Singh outlined four reforms — some already underway — that could give the domestic defence industry a significant fillip. 'The concept of deemed licensing beyond a certain timeframe to put accountability on the government departments concerned; shifting entirely from cost-based pricing to competitive bidding; removing legacy aspects like product reservation for public-sector units; and slashing procurement timelines by weeding out rigid and redundant procedures. These can lead to genuine broadening and diversification of our defence industrial base.' 'At this stage, deemed licensing is one of the suggestions. It still has to be negotiated through the system,' added the source quoted earlier. At present, India has one of the largest defence industrial complexes in the developing world: 16 defence public sector undertakings (DPSUs) under the administrative control of the MoD, over 430 licensed companies, and about 16,000 micro, small and medium enterprises (MSMEs). Highlighting at the CII summit how the MoD would in the past surrender part of the military modernisation budget each year due to protracted procurement procedures, Singh assured change was already underway, but emphasised that more still needed to be done. 'The MoD has already crunched the process timelines for various steps in the procurement cycle. Hopefully, that will save us about 69 weeks overall. It's important, but it's not enough.' Describing DAP 2020, which lays out the country's defence procurement procedures in detail, as a 'voluminous' document, the secretary said: 'It is time for it to be revised wholesale to reflect current realities. It needs shifting from the traditional nomination-based, cost-plus procurement focused mostly on the public sector, to a much more competitive pricing model where both the public and private sectors compete for orders.' Singh also highlighted how for shipbuilding and the Advanced Medium Combat Aircraft (Amca) programme, this approach was already being implemented. 'It's critical because this is increasingly an innovation-led, technology-driven industrial economy that we are witnessing.' Between 2016-17 and 2024-25, India's total defence production nearly doubled — from Rs 74,054 crore to Rs 1.46 trillion (Rs 1,46,000 crore) — while the private sector's contribution rose by over 2.2 times, from Rs 14,104 crore to over Rs 32,000 crore. Yet, its share in overall production remained largely rangebound, fluctuating between 19 per cent and 22 per cent. Assuring private-sector companies that the government was working on improving the ease of doing business, creating a level playing field between them and the DPSUs, and inundating them with a surge of orders, the secretary called for much greater focus from the private sector on research & development (R&D), and on private-sector capital formation through investments in capital equipment, machinery and engineering strength. 'In the longer run, companies which do not have the engineering manpower, or the capital equipment, or the willingness to invest in R&D, should not even think of entering into the defence domain, because your contribution to India's strategic autonomy will be minimal until you make those investments in creating a localised manufacturing ecosystem within the country.' In recent years, the United States and Europe have seen a surge in venture capital-backed military technology unicorns disrupting traditional defence R&D, contracting, and acquisition. Focused on platforms using computer vision, networking, and artificial intelligence, these non-traditional firms have leveraged commercially derived technologies to challenge incumbents like Lockheed Martin. Some have pushed to move beyond cost-plus contracts and are privately funding R&D, developing products without firm orders or specific user requirements, and selling them off the shelf. Their equipment are fast becoming integral to global arsenals, though they still cannot replace the costly manned platforms built by traditional players.