The mystery of Reliance subsidiaries receiving defence-manufacturing licences

30 November 2018
Reliance Group’s exploration of business opportunities in the defence sector escalated exponentially after Modi’s announcement of the Rafale deal.
Shailendra Bhojak/PTI

On 10 April 2015, during his first prime ministerial visit to France, Narendra Modi announced a government-to-government deal to purchase 36 Rafale jets that were to be manufactured by the French company Dassault Aviation, in “fly-away” condition. As per procedure, any foreign defence-manufacturer selling to India is required to reinvest part of the total cost of the deal into India—known as “offsets.” In September 2016, Manohar Parrikar, the defence minister at the time, and his French counterpart signed the Rafale deal. It was reported to be worth €7.87 billion—roughly Rs 59,000 crore—and Dassault was required to reinvest half that value in India.

In The Caravan’s September cover story, I reported how the Rafale deal ensured that Reliance Group, headed by the industrialist Anil Ambani, went from having almost no history in the defence sector to suddenly having aerospace businesses worth thousands of crores. Thirteen days before the deal was announced, the Reliance Group registered a new subsidiary named Reliance Defence Limited. Ten days after the agreement was signed, Reliance Aerostructure Limited—a subsidiary of Reliance Defence—and Dassault Aviation announced the creation of Dassault Reliance Aerospace Limited, a joint venture that is majority-owned by Reliance.

Reliance Group’s exploration of business opportunities in the defence sector escalated exponentially after Modi’s announcement of the Rafale deal. According to the 2016–17 annual return filed by Reliance Defence Limited, the company has 13 subsidiaries. All of these companies are involved in the manufacture of defence products. Nine of them were incorporated within three weeks of Modi’s announcement. Within a year of their incorporation, the Ministry of Commerce and Industry issued licences to seven of these nine companies, for the manufacture of defence products. But as of March this year, none of these companies had commenced any business.

According to Reliance Infrastructure’s annual report, 12 of the 13 subsidiaries of Reliance Defence Limited had not commenced business as of March 2018. Despite this, right-to-information documents reveal that on 22 February 2016, the department of industrial policy and promotion (DIPP), under the Ministry of Commerce and Infrastructure, issued defence-manufacturing licences to eight of these subsidiaries—seven of these were formed soon after Modi’s announcement.

In response to an RTI application that I filed in March this year, the DIPP responded with details of 12 licences granted to nine defence companies of the Reliance Group. These included licences for the design, development and production of missiles and simulators for air and naval platforms, and for the manufacturing of helicopters, aircraft and all-terrain combat vehicles as well as weapon launchers for combat aircraft. It is mysterious that these companies were granted defence licences before they were even operational. Pertinently, Dassault’s reinvestment into India is governed by the Defence Procurement Policy of 2013, and the procurement of a defence licence is one of the criteria to qualify as an Indian offset partner.

On 26 November, I spoke to R Mythili, an under-secretary in the DIPP, about the routine procedure followed by the department before issuing defence licences and when companies become eligible to receive them. Mythili explained the comprehensive process undertaken before the DIPP issues any license, which included taking into consideration the comments from the defence ministry, the environment ministry and the home ministry. Their comments are then placed before an internal licensing committee, which makes its recommendation to the minister of commerce, who then decides whether to approve or reject the application for a licence. She added that a company applying for a licence must be registered under the Arms Act, employ a minimum number of people and have commenced its operations. Under the Industries (Development and Regulation) Act, she said, “a minimum staff strength is required, which means that the company has to be in operation.” While the number of employees of these companies is not publicly available, Reliance Infrastructure’s annual report expressly states that these subsidiaries have not commenced business.

The Industries (Development and Regulation) Act of 1951 and the Arms Act of 1959 prescribe a detailed procedure for granting licences. These laws regulate licensing for setting up an arms and ammunition unit as well as for the manufacture, sale, import, export and transportation of defence products. While these laws do not provide a fixed timeline for the issuance of a licence, each of them stipulate a rigorous process of vetting a company’s financial credibility, its experience and expertise, and internal affairs, among other things, before an application is approved.

The IDR Act exercises jurisdiction over any undertaking pertaining to one of the scheduled articles, which includes aircraft as well as arms and ammunition. In June 2014, the DIPP released a press note listing several defence items that require compliance with IDR Act—all the equipments for which the Reliance Group companies received licenses are mentioned in the list. The act enables the central government to appoint an officer to make a “full and complete investigation” of all applications for a licence under the act. The scope of this investigation is wide, including scrutinising details such as a fall in the production of the volume of a particular article being sought to be manufactured and a rise in the price or national importance of any such article. The act further states that a licensing authority may issue a license if it is “satisfied that the person by whom the licence is required has a good reason for obtaining the same.”

The Arms Act also mandates a police officer to conduct an inquiry into the application seeking a licence and submit her report stating whether the licence should be granted. In addition, the Arms Rules of 2016 prescribe an extensive application process that mandates any company applying for a manufacturing license to submit, among other things, “a declaration with proof thereof to the effect that it has acquired the land for setting up the manufacturing plant.” The company must also demonstrate proof that it has installed an electricity and water connection. Moreover, the rules mandate that the company “shall preferably be self-sufficient in areas of product design and development.”

In August 2015, the Maharashtra government allotted a land measuring 289 acres to Reliance Aerostructure. Two years later, Ambani and Eric Trappier, the CEO of Dassault Aviation, laid the foundation stone at the facility. However, it is unknown whether the Reliance Defence Limited subsidiaries complied with these procedural requirements. I emailed questions to Ramesh Abhishek, the secretary of the department of industrial policy and promotion, and Daljeet Singh, the president of Reliance Group’s corporate communications department, enquiring about the grant of these licenses. Neither Abhishek nor Singh had responded at the time this story was published.

On 24 July 2015, Indrajit Singh, then the minister of state for defence, informed the Lok Sabha that the government had relaxed several norms regarding the issuing of industrial licences. Singh further stated that several defence items were exempted from the requirement of licencing “to reduce the entry barriers for the industry, particularly small and medium segment.” Six days later, Parikkar, who was the defence minister at the time, stated before parliament that the central government had withdrawn the tender to buy 126 Rafale jets.

In February this year, Subhash Bhamre, the minister of state in the defence ministry, informed the Lok Sabha that as of November 2017, the central government had issued a total of 100 defence licences to 74 private companies in the previous three years. Bhamre further stated that as of December 2017, 69 companies having 112 licenses had commenced production. The Reliance Defence Limited subsidiaries, on the other hand, received defence manufacturing licenses despite not commencing any business.

Sagar is a staff writer at The Caravan.

Keywords: Reliance Group Reliance Defence subsidiary companies Defence Procurement Policy defence department of industrial policy and promotion Ministry of Commerce and Industry defence-manufacturing license Rafale Industries (Development and Regulation) Act Arms Act
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