New Delhi — There was a long-standing demand from private sector manufacturers to bring parity between domestic private players with the Ordinance Factory Board and defence PSUs in the matter of payment of central excise and customs duty. As a major game changer, the Narendra Modi Government has withdrawn excise and customs duty exemptions presently available to goods manufactured and supplied to the Ministry of Defence by Ordinance Factory Board and defence PSUs.
This withdrawal has come via notifications 23/2015 – Central Excise and 29/2015 – Customs dated 30 April. This will provide a level playing field to domestic private players bidding for the government contracts by taking away the strategic advantage with PSUs for quoting lower rates in open bids.
Defence manufacturing is one of the key sectors among the 25 sectors identified under the ‘Make in India’ campaign launched by the Modi Government. A number of initiatives have been taken by the new dispensation to incentivise private sector, including foreign OEMs to engage in the defence and civil aerospace sector. A series of consultations have been held across ministries and departments under the mentoring of the PMO to enable simplification of rules and procedures to promote private participation under defence manufacturing and exports. This is hoped to stimulate big ticket investments and incentivise manufacturing.
The Indian aerospace and defence market is among the most attractive globally as India is highest importer of defence items in the world. As the prime minister has famously said, this is one distinction India is not keen to have much longer.
The government has systematically opened up the sector for private investment by increasing FDI cap in defence to 49% and rationalising conditions. Almost 60% items required for industrial licence have now been de-reserved.
Business re-engineering process has been effected across departments and ministries for a favourable manufacturing and export platform for private sector companies. The recent notification from Department of Revenue will provide a definitive message to foreign OEMs that India is open to business for defence manufacturing.