Technicians installing the radar unit on a Sukhoi Su-30MKI Air Superiority Fighter

India is the world’s largest importer of defense equipment and spends around $24 billion a year, according to Stockholm International Peace Research Institute.

Mumbai: The new changes to the Arms Rules 2016 released earlier this month are expected to encourage private and small firms and tide over the deficit of ammunition for armed forces, said analysts and companies.

The new rules will spur domestic private production of arms and ammunition, said Ankur Gupta, vice-president (aerospace and defense) at consultancy and audit firm, EY India.

“This should not only help overcome the deficit of our armed and paramilitary forces but also enhance India’s stature as a regional supplier of such equipment. A note of caution though is that it will take some time for the ministry of home affairs to institutionalize the process of accept-scrutinize-grant of the required licenses,” Gupta said.

According to the new rules, transport of arm and ammunition by private entities is permitted after the filing of a so-called Application Form XII and its acceptance by the authorities.

At present, the production of ammunition is dominated by the state-run Ordnance Factory Board (OFB).

Companies such as TATA Group, Punj Lloyd Ltd, Bharat Forge Ltd, etc are private companies that are keen on arms and ammunition.

Rajinder Bhatia, president and chief executive officer of defense and aerospace at ‎Bharat Forge Ltd, said new rules are “positive” for private enterprises that are keen to make arms and ammunitions.

“Earlier, manufacturing of these items were restricted to government factories or enterprises owned by the government. Now, the rule has allowed private companies to start manufacturing. These are positive regulations that will lead to increased local manufacturing,” Bhatia said.

But for Larsen and Toubro Ltd (L&T), one of the leading defense manufacturers, small arms and ammunition are not an area what it is keen on.

“L&T can examine the manufacture of larger caliber guns within small arms category like 12.7mm and above,” said J.D. Patil, senior vice president, head, defense and aerospace, a member of the boards of L&T Heavy Engineering and L&T Shipbuilding, at L&T.

Patil said L&T will not participate in ammunition production for small arms because even globally, this manufacturing is done in the SME (small and medium enterprises segment). The final assembly plant to produce few million bullets cost‎ less than Rs.20 crore.

“These are not expensive and this is an SME category item rather than for a company like L&T. The explosive chemical plant is more capital intensive, but filling explosive can easily be bought. Ammunition is also an ultra-sensitive matter, and the smallest of misappropriation by any staff or a security breach is too much an effort for a corporate of our size to cost-effectively manage,” Patil said.

He said small arms is the least interesting segment for a company like L&T that has invested in a heavy forge facility and also has the highest level of experience and capability in the missile domain in the private sector.

Experts, however, think otherwise.

“The new policy is a major incentive for global manufacturers to set up local manufacturing. Besides, it builds a case for global firms interested in addressing the substantial Indian demand, it ensures Indian soldiers and armed forces will have options to get world class primary armament in India. It will also help in ensuring seamless upgrade of technology for the user. Local manufacture, if planned well, may also bring substantial cost improvements,” said Rahul Gangal, a partner at consulting firm Roland Berger Strategy Consultants.

According to a July EY note, the annual production plan of OFs is based on targets mutually agreed with indentors, i.e., Army, Navy, Air Force, Central and State Police etc.

“The production program for ammunition, weapons, and vehicles, material and components as well as armored vehicles are fixed for one year and generally, there has been a shortfall of more than 34% in meeting such targets. OFB has been falling short of the target by 30%–35% year on year to fill in the demand,” EY said.

The new arms rules are also complemented Prime Minister Narendra Modi’s emphasis on defense equipment as part of his Make in India campaign.

India is the world’s largest importer of defense equipment and spends around $24 billion a year, according to Stockholm International Peace Research Institute.

Make In India seeks to reduce import and pushes for indigenous products.