The manufacture of arms and ammunition is presently regulated under a licensing system established by the Arms Acts (1959) and Arms Rules (1962) and is under Government domain. The manufacturing of Small Arms for armed forces/paramilitary forces/police, are confined to the Department of Defence Production. Even after liberalization of the Indian economy and removal of licensing regime for major industries, the private sector is not allowed in this sector. There are 95 firms licensed by the Ministry of Home Affairs, Government of India for the manufacture of guns (single barrel/double barrel) and 25 firms manufacturing cartridges (either blank cartridges or live cartridges or both) up to the quota permitted in their licences. The Department of Industrial Policy and Promotion (DIPP) obtained a decision from the Cabinet during 2001 – 2002 to allow manufacture of arms and ammunition in the private sector with nil or upto 26% FDI.
However, recently, MHA has formulated a draft Arms Act-2015 and it has been put up in the open domain for comments from all sections of stakeholders, wherein the private industries will be allowed to manufacture and proof test arms & ammunition including the ones being used by military. Therefore, India has decided to reduce ammunition imports and instead procure all ammunition requirements from domestic sources. The Ministry of Defence (MoD) under its Make In India initiative is now encouraging the private sector to manufacture ammunition. Previously, only state-owned Ordnance Factory Board (OFB) was permitted to produce ammunition and India’s private sector was only allowed to manufacture parts of ammunition such as the shell or fuse. The Indian industry was denied participation in the manufacture of ammunition, as no industrial license was issued for filling process. Thus the monopoly stayed with OFB, whose lack of capacity restricted the demand of the services, gradually leading to deficiencies over the years. It was not that the industry does not have the capability to manufacture with transfer of technology, but they have not taken any concrete action to acquire technology in this regard till now.
A request of information (RFI) was issued for participation in a $400 million program to manufacture of variety of ammunition in the next five to eight years, including 20,000 units of 125mm ammunition for T-90 and T-72 tanks; 500,000 units of 23mm ammunition for Strella air defense systems; 300,000 units of 40mm ammunition for grenade launchers; 500,000 units of 40mm ammunition for multi-grenade launchers; 5,000 units of ammunition for Grad multi-barrel rocket launchers; 600,000 fuses for 155mm M-46 howitzers; 188,600 units of 30mm ammunition for the BMP armored vehicles; and 100,000 units of ammunition for 155mm FH77/B howitzers.
Most of the ammunition are of East European origin, and the companies may have edge. However, the upgrade variants could be provided by European and Israeli original equipment manufacturers. Several overseas defense companies — such as Expal of Spain, Nexter of France, Rosoboronexport of Russia, Chemring Group of the United Kingdom, Saab of Sweden, Elbit of Israel, Rheinmetall Defence of Germany, Diehl Defence of Germany, Denel of South Africa, Yugoimport of Serbia, Bumar of Poland, Orbital ATK Armament Systems of the United States and Arsenal of Bulgaria — are negotiating with private Indian companies to provide cutting-edge technology for multiple Indian ammunition programs.
The annual ammunition market size in India exceeds $1 billion, which is largely due to imports and OFB. With the past demonstrated OFB production capability, there is scope of additional annual capacity of approximately $250 million in private sector. Medium- and high-caliber ammunition forms a major part of what needs to be indigenously produced with annual share of about $300 million.
The private sector is primarily engaged in the manufacture of single and double-barrel and air rifles/pistols. This has resulted in a situation where the military is dependent on foreign suppliers for most of its requirements, especially in areas of critical technologies and the nation has to spend billions of dollars on small arms import. The volume of major weapons imports have more than doubled between 2004-08 and 2009-13 and India is still struggling to upgrade its arms manufacturing sector, despite this being a priority for over a decade. However, with the implementation of the new arm rules as projected by MHA for the participation of private industries in arms manufacturing is likely to bring high tech SAs indigenously and will help the nation to become self reliant in this sector. The market opportunity for small arms is bound to grow keeping in mind that the Ordnance Factories with an annual production capacity, barely meet the annual replacement requirement of defence services. The same also goes for matching requirement of Ammunition. Hence, the scope for private sector to fill the gap to the tune of 50% Level to OFB production capacity.