The draft Defence Production Policy 2018 had set the target of increasing defence exports to Rs 35,000 crore by 2025

by Amit Cowshish

Late last month, the Ministry of Defence (MoD) notified two Open General Export License (OGEL) schemes to make an intra-company transfer of software and technology and export of parts and components easier. This step is obviously intended to give an extra push to exports, which have witnessed an upswing in recent years.

Going by MoD’s annual report for 2018-19, the authorisations for export increased from 254 in 2016-17 to 668 in 2018-19, while the total exports rose from Rs 1,521.91 crore to Rs 10,745.77 crore during the same period.

The draft Defence Production Policy 2018 had set the target of increasing defence exports to Rs 35,000 crore by 2025. At the present rate of growth, and with various measures being taken by the MoD, it should be possible to achieve the target much earlier. OGELs could come in handy if that is to happen.

While one of the OGELs would facilitate export or transfer of software and technology by an Indian subsidiary to its parent company abroad or another subsidiary of the parent company, the other OGEL is intended to promote the export of some parts and components of defence equipment.

The items permitted for export include components of ammunition and fuse setting devices without energetic and explosive material, firing control and related altering and warning equipment and related systems, and body protective items.

The permission to export under these OGELs is not unfettered, though. The notifications specify the kind of software, technology and components that can be exported, as also the conditions to be complied with, the records to be kept, and the reports to be submitted by the exporter.

The countries to which export would be allowed include Belgium, France, Germany, Japan, South Africa, Spain, Sweden, UK, USA, Canada, Italy, Poland and Mexico. Two of India’s major defence partners – Russia and Israel – do not figure in this list.

Export or a transfer would also not be permitted under the OGEL to any Special Economic Zone.

Considering that these notifications have been issued in response to a demand from the exporters and after extensive consultations between the Department of Defence Production (DDP) and various stakeholders, the scheme should make life easier for the exporters, but certain features of the scheme could rain on their parade.

First, those desirous of exporting software, technology, parts and components will have to apply to the DDP for authorisation in terms of the OGEL. The notifications do not contain the format in which the application is to be submitted and there is no precise checklist of declarations to be made and documents to be submitted by the applicant.

This introduces an element of uncertainty and opaqueness in the process to be adopted by the DDP for the examination of the application and grant or denial of the authorisation.

Second, some provisions lend themselves to subjective interpretations. For example, there is a common provision in both the notifications which say that the competent authority reserves the right to audit and ensure the correct usage of the OGEL and failure on the part of the exporter to use it correctly may lead to suspension or withdrawal of the authorisation by the DDP.

No audit drill is prescribed in the notifications and there is no clarity what would constitute ‘correct’ usage of the OGEL and how will the DDP ensure it. Nor do the notifications lay down the circumstances in which the authorisation would be suspended – and for how long – or withdrawn.

Third, the exporter will be required to submit an end-of-the-year report, in addition to the quarterly reports, on all transactions done under the OGEL for examination and post-export verification by the DDP.

The end-of-the-year seems redundant and will only add to the paperwork which, going by various requirements mentioned in notifications seems enormous anyway. This goes against the grain of simplification of processes and digitisation, which are critical for promoting ease of doing business.

Fourth, the authorisations under the OGEL scheme are to be valid for two years from the time these are issued. It is difficult to understand the rationale underlying this limitation. If the applicant exporter has or is likely to secure, an export contract which goes beyond two years, he/she will be forced to re-apply despite regular reporting of transactions every quarter.

Fifth, the export authorisations under the OGELs are liable for recall/termination by the DDP on account of an adverse report in respect of any of the export consignments, non-submission of mandatory annual reports, non-compliance with the conditions for grant of the OGEL, or proliferation concerns.

While the government is within its rights to recall or terminate the authorisation for breach of the prescribed terms and conditions, it would be unfair to take such a drastic action without giving an opportunity to the exporter. No mechanism has been laid down for the aggrieved exporter to challenge even the rejection of the request, much less the recall or termination of the authorisation.

Notwithstanding these concerns, which can anyway be easily addressed, the step taken by the government is in the right direction. Much will depend though on how the scheme is implemented by the DDP.