Manufacture of products such as sub-assemble items, components, castings, night-visions and surveillance would not require an industrial licence.
Simplifying the licensing process, a Commerce and Industry Ministry order listed four categories of products that would require prior permission and freed the rest from any licence condition.
Soon after Prime Minister Narendra Modi stressed on developing indigenous defence industry, the government has done away with the requirement of permits for manufacturing items other than those used in the battleground.
Industrial licences would now be required only to make items such as tanks and other armoured fighting vehicles; defence aircraft, spacecraft and parts; warships of all kinds; and arms and ammunition and allied items of defence equipment, parts and accessories.
According to a top government official, this is a major breakthrough which would enhance defence manufacturing in the country.
"From the earlier list, now we have removed over 50 per cent of items which would not require industrial licence to manufacture. The previous list was a total of 6 pages, out of which 4 pages have been removed. A foreign company too can come and set up units to manufacture those items without prior approval," the official said.
Those companies, which are making equipment, castings and other smaller items and are not fully integrated as weapon system, have been left out of this list, defence sources said.
"Items not included in the list would not require industrial licence for defence purpose. Further, it is clarified that dual-use items, having military as well as civilian applications, other than those specially mentioned in the list, would also not require industrial licence for defence angle," the Commerce and Industry Ministry said.
Defence items are covered under compulsory licensing under the Industries (Development and Regulation) Act, 1951.
Another official said the industry had raised the issue as there was confusion over several dual-use products.
"This clarification will also help in attracting more investments in the sector," the official added.
Welcoming the move, CII said that the decision would bring more clarity to procedures and encourage new entrants into the sector.
"Given the opportunity, the defence industry has the potential to generate large employment opportunities and provide much-needed impetus to India's manufacturing sector leading to its professed goal of self-reliance," CII said.
"We are also hopeful that the delays in granting and renewing industrial licensing would also be addressed at the earliest," CII added.
Defence items, which need industrial licences include tanks, military armoured vehicles, deep water fording vehicles, unmanned aerial vehicles, vessels of war, anti- submarine, all rifles, howitzers, torpedoes, electronic equipment used for electronic counter measure and concealment and deception equipment specially designed for military application.