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Image Courtesy: presentationmagazine.com
The BJP-led NDA Government is expected to liberalize soon the industrial licensing regime for manufacture of defence equipment and a few other products that are not delicensed. 
The proposed initiatives are: 1) extending the initial validity of industrial license (IL) by one year to three years; 2) laying down clear-cut procedure for extension of the validity of IL by two years and 3) acknowledging start of partial production of a few of the licensed items as start of commercial production to obviate the need for seeking extension of validity of IL.
The credit for this belated reform would, however, neither go the NDA nor to the UPA.  The credit should go to the civil servants who have conceived these relaxations without any political prod. These initiatives were agreed by an inter-ministerial panel on 13th May 2014, when the phased voting for the Lok Sabha seats had ended and the UPA was preparing to face the stunning drubbing. 
The extension of IL’s initial validity by one year would give more time to the companies to implement their projects. As put by an official, this would also “save the licensee the hassle of obtaining extension of validity as the benefit of more time may lead to commencement of commercial production and thereby resulting in implementation of the IL.” 
At present, the companies are granted ILs with two year validity period during which they have to submit to the Government progress report every six months. The validity gets regularized if the companies start production within two years. Alternatively, they have to apply for extension, giving reasons for the delay in start-up of the production. 
Under the proposed guidelines for extension of IL’s validity, the companies would have to apply to the relevant administrative ministry for extension 60 days prior the expiry of three-year validity.
In the case of defence equipment and explosives, the applications would also be forwarded to the Ministry of Home Affairs (MHA) and concerned State Government for seeking their comments. MHA’s comments would be sought only when the board of directors or key management of the applicant company undergoes change.   
The draft guidelines have specified three conditions that should be fulfilled by the applicants to become eligible for grant of extension. These are: completion of land acquisition, start of construction and placement of orders for capital goods.
According to the draft guidelines, “Renewal of license would be allowed for a period of two years. Any industrial license, wherein commercial production has not started within a period of five years of issue of license will be treated as automatically lapsed.”
The industrial licensing guidelines are currently silent on the issue as to whether partial commencement of production would constitute implementation of IL or whether a company would have to apply for IL’s extension till it starts manufacturing all items mentioned in IL. 
As put by the Draft guidelines, “partial commencement of commercial production may be accepted as the commencement of commercial production in respect of the entire industrial license.”
This would put an end to the present practice of companies seeking repeated extension of ILs pending start of production of items mentioned IL. Partial production guideline is of crucial importance in the defence sector where the equipment depends on the orders placed by the armed forces. There may be a situation where a factory is ready to start production but cannot do so for want of purchase orders from defence forces or for want of permission to export. 
Under the Industries (Development and Regulation) Act 1951, ILs are required for manufacture of defence equipment, explosives, a few specified hazardous chemicals, cigarettes and other tobacco products and distillation and brewing of alcoholic drinks that comes under the States’ domain.
Large companies also have to secure ILs to manufacture a few products that are reserved for production by small scale sector. 
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