MoD Puts 108 Items on Import Ban List. Investors to Benefit?

The Ministry of Defence (MoD) has announced a "Positive Indigenisation List" of 108 items of defence equipment that must be sourced locally.

The list includes 49 items that will be banned for import after December this year and 21 that cannot be imported after the end of 2022.

Of the remaining, 17 will be banned for import after December 2023, 13 after December 2024, and eight that will have to be procured locally after December 2025.

Import substitution a key focus of the ban

All the 108 items will now be procured from indigenous sources as per provisions given in the defence acquisition procedure (DAP) 2020.

The first negative list for defence imports comprising 101 items was issued last year in August.

Like the first list, import substitution of ammunition, which is a recurring requirement, has been given special focus.

The second positive indigenisation list lays special focus on weapons and systems which are currently under development/trials in India and are likely to translate into firm orders in the future.

With respect to the ban, the Ministry of Defence said...

• The Defence industry can gainfully utilise this golden opportunity to build robust Research and Development facilities, capacities and capabilities to meet the futuristic requirements of the Armed Forces.
  
  This list also provides an excellent opportunity for 'start-ups' as also MSMEs which will get a tremendous boost from this initiative.

Ban to be implemented progressively

The announced ban is to be implemented progressively with effect from December 2021 to December 2025.

Here is a timeline of how it will be carried out.

• From December 2021, the military will rely exclusively on indigenous vendors for defence equipment, including land-based single-engine light helicopters, next-generation corvettes, and mine-protected infantry vehicles etc.
• December 2022 onwards, the defence sector will be required to supply equipment, including thermal imaging sights for rifles and machine guns as well as, armoured bulldozers for mechanised and engineer units.
  Data network for the operations rooms of ships and a manpack version of software defined radio (SDR) will also have to be sourced locally.
• Following this, from December 2023, the military would have to rely only on homegrown supply for mountain-based weapon locating radars, an upgraded version of the 76 mm naval super-rapid gun mount, video processing cards for the Sukhoi-30MKI fighter and a hand-held version of SDR.
• After December 2024, a raft of new equipment can be obtained only within the country. This includes onboard oxygen generation systems for fighter aircrafts, medium power radar for mountains, fuel drop tanks for Jaguar and Mirage fighter aircraft and long-range glide bombs (250 kg and 450 kg).
• Finally, after the end of 2025, there will be no import of defence related equipment.

Speaking of the defence sector, have a look at the chart below which shows the top 5 military spending countries in the world as of 2019.

According to a SIPRI (Stockholm International Peace Research Institute) report, India was the third largest military spending country in the world in 2019.

If you look at the chart closely, you will realise it's likely to remain among the top spenders in the coming years. It's because of the second largest spender shown in the chart, China.With rising tensions between the two countries, the incentive is strong for India to keep up with China. Therefore, it makes sense for the government to focus on this sector.

The government's 'Atmanirbhar' push has already given a massive boost to local defence manufacturing. The ban will help enhance this further.

Equitymaster's View on the Import Ban

We reached out to Tanushree Banerjee, Co-Head of Research at Equitymaster, and Editor of the premium stock recommendation service, StockSelect, for her view on the ban -

Here's what she has to say -

• In a big push towards defence indigenisation, the Indian government has approved the restrictions on the import of an additional 108 military weapons and systems under a staggered time line of four-and-half years.
  
  The push towards defence indigenisation bodes well for defence manufacturers that are setting up capacities to meet demand.

How the Stocks of Defence Manufacturers Reacted to the Ban

On 1 June, Bharat Electronics shares jumped 5.6% on the BSE, followed by Hindustan Aeronautics, and Garden Reach Shipbuilders which soared 5% each.

Astra Microwave, BEML, Bharat Forge, and Mazagon Dock Shipbuilders also advanced between 1% and 4.4%.

For more details about the sector, you can have a look at the list of defence stocks on our website.

You can also compare some of the defence companies with their peers.

Bharat Forge vs Bosch

Bharat Electronics vs L&T

To know what's moving the Indian stock markets today, check out the most recent share market updates here.