1What is an industrial licence?

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An industrial licence is permission from the Central Government to set up, expand or relocate a manufacturing unit, or to manufacture a new article, in an industry that the law has chosen to regulate closely. It is issued under the Industries (Development and Regulation) Act, 1951 (the IDR Act), most importantly under Section 11 (licensing of new undertakings) and Section 13 (substantial expansion, new articles and change of location).

The IDR Act lists, in its First Schedule, the industries that fall within central control. The Government then decides, through industrial policy and notifications, which of those scheduled industries actually require a licence. The licensing authority is the Department for Promotion of Industry and Internal Trade (DPIIT) in the Ministry of Commerce and Industry, working with the relevant administrative ministries, such as the Ministry of Defence for defence items.

The purpose of licensing today is narrow: to keep watch over industries that affect national security, public health, public safety and the environment. It is no longer a tool for controlling capacity, investment or competition across the economy, which is what it once was.

2From licence raj to delicensing

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Understanding the history explains why so few industries need a licence today and why older articles on the internet can be misleading.

• 1951
  The IDR Act is enacted. Setting up or expanding almost any significant industrial unit requires a central licence, which becomes the foundation of the planned economy.
• 1956–1980s
  Industrial policy resolutions reserve key sectors for the public sector and the licensing system tightens. The period later becomes known as the "licence raj".
• 1991
  The New Industrial Policy abolishes licensing for most industries. Compulsory licensing is retained only for a list of 18 industries, and public sector reservation is sharply reduced.
• 1990s–2000s
  The compulsory list shrinks further as items such as coal, petroleum, sugar, motor cars, white goods, paper and drugs are delicensed in stages.
• 2015
  The last items reserved for the small-scale sector are de-reserved, ending the separate licensing requirement for large units making those products.
• 2016
  Parliament amends the IDR Act to remove potable alcohol from central control, leaving it to the states.
• 2017–2019
  Defence licensing is rationalised. DPIIT becomes the authority for specified defence items, and the defence product list is notified through Press Note 1 (2019 Series).
• 2023
  Press Note 1 (2023 Series) extends the validity of all industrial licences from 3 years to 15 years, with a further 3-year extension possible.
• 2024
  A nine-judge bench of the Supreme Court holds that states can regulate and tax industrial alcohol, reshaping the regulatory picture for alcohol-based industries.

3Who needs an industrial licence in 2026?

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There are three situations in which an industrial licence from the Central Government is required.

3.1 Industries under compulsory licensing

As per the current industrial policy published by DPIIT, the following industries require a compulsory licence:

The hazardous chemicals entry is deliberately narrow. Most chemical manufacturers do not need an industrial licence, although they will need environmental clearances, consents and safety approvals under other laws. The inclusion of methyl isocyanate reflects the lessons of the 1984 Bhopal gas tragedy.

3.2 Industries reserved for the public sector

A small number of activities remain reserved for the public sector:

• Atomic energy, including the production, separation or enrichment of special fissile materials and substances listed under the Atomic Energy Act, 1962.
• Railway operations, although private participation is permitted in many areas, such as rolling stock manufacture, infrastructure and freight terminals.

Private entities can take part in these sectors only to the extent that specific policies allow, and generally under separate permissions rather than a standard industrial licence.

3.3 Locational restrictions

Under the 1991 policy, an industrial licence is also required for an otherwise delicensed industry if the unit is proposed within 25 kilometres of the periphery of a city with a population of more than one million (as per the 1991 census). Exceptions apply to:

• units located in areas designated as industrial areas before 25 July 1991;
• electronics, computer software, printing and other non-polluting industries; and
• units that comply with local zoning, land-use and environmental regulations in designated industrial areas.

In practice, most new units are set up in notified industrial areas, where this restriction does not bite. Units in such locations must still follow the master plan, zoning and pollution norms of the state and city.

4Do you need one? A five-question test

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Run your project through these five questions in order. A "yes" to any of the first three usually means you need a central industrial licence.

1. Is the product on the compulsory licensing list? Cigars and cigarettes, defence or aerospace equipment, industrial explosives or the specified hazardous chemicals. Classify your products by their ITC-HS codes and technical description rather than marketing name. If yes, you need an industrial licence.
2. Is the activity reserved for the public sector? Atomic energy or railway operations. If yes, private manufacture is only possible under specific policy permissions.
3. Is the unit within 25 km of a million-plus city, outside a designated industrial area, and not a non-polluting industry? If yes, a locational licence may be required.
4. Is it a defence part or small arm? Parts and components of defence equipment generally do not need a licence unless they are specifically listed, but arms and ammunition need an Arms Act licence (see section 5).
5. None of the above? Your industry is delicensed. You do not need an industrial licence, but you must file an IEM or Udyam registration as applicable and obtain the other approvals listed in section 12.

5Defence manufacturing: IDR Act vs Arms Act

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Defence is the sector in which industrial licensing is most active today, driven by the Government's push for domestic defence production. It is also the most confusing, because two separate laws apply.

5.1 The parts and components exemption

One of the most useful rules for MSMEs entering defence supply chains is that parts, components and accessories of defence equipment generally do not require an industrial licence, unless they are specifically included in the notified list. This allows small precision engineering firms, electronics suppliers and fabricators to supply defence majors without going through the full licensing process. The exemption does not extend to small arms and ammunition, which remain under the Arms Act.

5.2 Security conditions

Defence licences come with security obligations, including physical security of premises, control over access to classified information, background checks on key personnel and reporting of changes in ownership. These conditions form part of the licence, and breaches can lead to suspension or cancellation.

6Alcohol, tobacco and the state–centre divide

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6.1 Potable alcohol

Older lists of compulsory licensing include "distillation and brewing of alcoholic drinks". The position has changed. In 2016, Parliament amended the IDR Act to exclude potable alcohol from central control. Breweries, distilleries and bottling plants producing alcoholic drinks for human consumption are licensed by state excise departments under state excise laws, not by DPIIT.

6.2 Industrial alcohol after the 2024 Supreme Court ruling

For decades, industrial alcohol (used as a raw material in chemicals, pharmaceuticals and fuel blending) was treated as a central subject following the Supreme Court's 1990 decision in Synthetics and Chemicals Ltd. v. State of U.P. On 23 October 2024, a nine-judge Constitution Bench held by an 8:1 majority that "intoxicating liquor" in the State List includes industrial alcohol, and overruled the 1990 decision. States therefore have the power to regulate and tax industrial alcohol.

For businesses that make or use industrial alcohol, such as ethanol producers, chemical manufacturers and pharmaceutical companies, this means that state excise and regulatory requirements must now be considered carefully alongside central rules. The exact requirements vary from state to state and continue to develop.

6.3 Tobacco

Manufacture of cigars and cigarettes of tobacco and manufactured tobacco substitutes remains under compulsory central licensing. Other tobacco products, such as bidis and chewing tobacco, are outside the compulsory licensing list, but are heavily regulated under the Cigarettes and Other Tobacco Products Act, 2003 (COTPA), excise and GST laws, and food safety rules where applicable. Foreign direct investment in the manufacture of cigars, cheroots, cigarillos and cigarettes is prohibited.

7Delicensed industries: IEM and Udyam

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Being delicensed does not mean being invisible. Delicensed manufacturing units must still inform the Government of their existence, through one of two routes depending on their size.

7.1 How the IEM works

• Part A records the proposed project: the company, products, capacity, location, investment and employment.
• Part B is filed after commercial production starts, confirming the actual details.
• DPIIT issues an acknowledgement for each part. The acknowledgement is not an approval; it does not replace any central, state or local clearance required for the project.
• Filing is online through the DPIIT and NSWS systems, with supporting documents such as the certificate of incorporation and memorandum and articles of association.

The IEM is useful beyond compliance: many state incentive schemes, land allotment processes and banking proposals ask for the IEM acknowledgement as proof that a large project is registered with the Central Government.

8How to apply: step by step

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If your project does need an industrial licence, the application is made online. A well-prepared application moves through these stages:

1. Set up the entity. The applicant is usually a company. If you have not yet incorporated, decide on the structure first; a private limited company is the most common vehicle, and foreign promoters often use a wholly-owned subsidiary or a joint venture company.
2. Classify the products. Map each product to its ITC-HS code and to the relevant licensing list or defence product list annexure.
3. Secure land and plan the plant. Identify the site, check zoning and land use, and prepare a project report with capacity, process flow and investment.
4. Register on NSWS. Create an investor profile on the National Single Window System and select the industrial licence (or Arms Act licence) application.
5. File the application. Submit the online form with product details, annual capacity, location, investment, employment, foreign collaboration (if any) and safety and environmental measures, along with the prescribed fee.
6. Inter-ministerial scrutiny. DPIIT circulates the application to the administrative ministry (for example, Defence or Home Affairs), the state government and other agencies for comments. Security clearance is obtained where required.
7. Licensing Committee. The application is placed before the Licensing Committee, which recommends approval or rejection, sometimes with conditions.
8. Grant of licence. DPIIT issues the licence specifying the items, capacity, location and conditions. The licence and its conditions should be read carefully before construction begins.

9Documents and information required

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The exact requirements depend on the sector, but applicants should be ready with the following:

10Validity, extension and lapse

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Licence validity was one of the biggest practical problems for licensees. Large projects, especially in defence and chemicals, often take years to build, and a short licence period forced repeated extension applications. Press Note 1 (2023 Series), issued by DPIIT on 21 July 2023, changed this.

10.1 Conditions for extension

An application for the additional three years must be made to the administrative ministry or the Explosives Section of DPIIT before the 15-year period ends. At the time of applying, the licensee should generally have:

• acquired land, either owned or leased for at least 30 years;
• completed construction of the project; and
• installed and commissioned the plant and machinery.

Any changes, such as a change of name, board, capacity or premises, must already have been endorsed on the licence. Licences that have been transferred, suspended or cancelled in the meantime are not considered for extension. Eligible cases can be approved at the level of an Additional or Joint Secretary without going back to the Licensing Committee.

11Post-licence compliance and changes

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Obtaining the licence is the beginning, not the end. A licensed unit must operate within the four corners of its licence and report material changes.

• Manufacture only licensed items. A new article generally needs a fresh licence or an amendment under Section 13 of the IDR Act.
• Seek approval for substantial expansion or relocation. Changes in location, and expansion beyond what the licence and policy permit, need prior approval.
• Endorse corporate changes. Changes in company name, ownership, board or shareholding should be reported and endorsed, especially for defence licences, where they can trigger fresh security review.
• Commence production on time. Track the 15-year validity date and plan any extension application well in advance.
• Comply with licence conditions. These may include security, export control, safety and reporting obligations.
• File periodic returns. Submit production and other returns as required by the administrative ministry.
• Keep corporate records clean. Licence holders are often subject to inspection; maintaining statutory registers and board resolutions for every licence-related decision helps.

12Other approvals every manufacturer needs

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This is the section most other guides leave out, and it matters more to most businesses than the industrial licence itself. Whether or not your industry is licensed, a manufacturing unit in India typically needs several of the following:

Our registrations practice can map every approval your unit needs in your state, product category and pollution category, and sequence them so that construction and production are not held up.

13Foreign investors and industrial licensing

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Industrial licensing and foreign direct investment are separate regimes, but foreign companies setting up manufacturing in India must navigate both.

• Most manufacturing is open. FDI up to 100% is permitted under the automatic route in most manufacturing sectors, and most of these are delicensed.
• Defence: up to 74% automatic, above that with Government approval, plus an industrial or Arms Act licence for listed items.
• Tobacco: FDI is prohibited in the manufacture of cigars, cheroots, cigarillos and cigarettes of tobacco or tobacco substitutes.
• Land border countries: investment from entities in, or beneficially owned by persons from, countries sharing a land border with India requires Government approval under Press Note 3 (2020 Series), regardless of sector.
• Reporting: foreign investment must be reported to the RBI, for example through Form FC-GPR after shares are allotted.

Our FEMA compliance and FDI reporting and FC-GPR and FC-TRS filing services cover the foreign investment side, and our guide to setting up a business in India explains the entry options. Foreign-owned manufacturers should also follow our compliance calendar for tax year 2026-27.

14Consequences of getting it wrong

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Operating a unit that needs an industrial licence without one, or in breach of its conditions, can have serious consequences:

The reverse mistake also costs money. Businesses sometimes spend months chasing an industrial licence they do not need, while neglecting the pollution consents, fire NOC or factory registration that will actually decide when they can start production.

15Common mistakes to avoid

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16How Delhi Legal Company can help

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Delhi Legal Company helps Indian promoters and foreign companies set up and run manufacturing operations in India, from the first assessment of licensing requirements to ongoing compliance.

17Conclusion

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The answer to "who needs an industrial licence in India?" is far shorter today than it was a generation ago. Only manufacturers of cigars and cigarettes, specified defence and aerospace equipment, industrial explosives and a few hazardous chemicals, together with projects caught by public sector reservation or locational limits, need a central industrial licence. Licences, once granted, now last 15 years with a possible 3-year extension, and applications are made online through the National Single Window System.

For everyone else, the real work lies elsewhere: Udyam or IEM registration, pollution consents, fire and factory approvals, sector licences, and foreign investment compliance. Getting the licensing question right at the start, and documenting the answer, saves time, protects financing and avoids penalties later.

Not sure whether your project needs a licence?

Share your product list and proposed location with us. We will tell you whether an industrial licence applies, and map every other approval your unit needs.

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?Frequently asked questions

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Which industries require an industrial licence in India?

Under current policy, compulsory licensing applies to cigars and cigarettes of tobacco and manufactured tobacco substitutes, electronic aerospace and defence equipment, industrial explosives (including detonating fuses, safety fuses, gunpowder, nitrocellulose and matches) and specified hazardous chemicals (hydrocyanic acid, phosgene, isocyanates and their derivatives). Licences may also be needed for public sector reserved activities and under the locational policy.

Who issues industrial licences?

The Department for Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce and Industry, issues industrial licences under the IDR Act, after consulting the relevant administrative ministry and state government and on the recommendation of the Licensing Committee.

How long is an industrial licence valid?

Under Press Note 1 (2023 Series), an industrial licence is valid for 15 years, extendable by a further 3 years. If commercial production has not begun within 18 years, the licence lapses automatically.

Do I need an industrial licence for a small factory?

Usually not. Most small units fall in delicensed industries and need Udyam registration plus local approvals, such as pollution consents, fire NOC and factory registration. A licence is needed only if the product is on the compulsory list or another restriction applies.

What is an Industrial Entrepreneur Memorandum?

The IEM is a filing with DPIIT by large delicensed undertakings that exceed MSME limits. Part A is filed when the project is planned and Part B when commercial production begins. It is an acknowledgement, not an approval.

Is an industrial licence needed for a brewery or distillery?

Not from DPIIT. Potable alcohol was removed from the IDR Act in 2016 and is licensed by state excise departments. After the Supreme Court's October 2024 ruling, states can also regulate and tax industrial alcohol.

Do defence component manufacturers need a licence?

Generally no. Parts, components and accessories of defence equipment are exempt unless specifically listed in the notified defence products list. Arms and ammunition, including small arms, require a licence under the Arms Act.

Can a foreign company obtain an industrial licence?

Yes, through its Indian company. FDI rules apply separately: defence is open up to 74% under the automatic route, while FDI in cigarette and cigar manufacturing is prohibited. Investors from land border countries need Government approval.

How do I apply for an industrial licence?

Applications are filed online on the National Single Window System (NSWS) with project, product, location, investment and safety details. DPIIT seeks comments from other ministries and the state, and the Licensing Committee recommends a decision.

Is a factory licence the same as an industrial licence?

No. A factory licence or registration is a state-level approval for manufacturing premises, now under the OSH Code. An industrial licence is a central approval required only for specific regulated industries.