In a major push to local defence industry, the government plans to offer a host of incentives to the sector including capex and R&D subsidy, tax exemptions, cheaper finance and one-stop shop for clearances. The steps are also aimed at making defence manufacturing in India more attractive to foreign investors.
The proposals are part of the draft industrial policy, promising to give much-needed shot in the arm to the manufacturing sector.
With the need for strengthening the defence sector amplified in the wake of border tensions with China, Department for Promotion of Industry and Internal Trade (DPIIT) has suggested a freeze in changes to the Defence Procurement Policy for 4-5 years to provide confidence to the industry for making long-term investment decisions.
DPIIT has observed that Defence Procurement Policy went through 6 revisions between 2005 and 2017 - underlining lack of long-term stability in regulations.
The country's defence industry accounts for about 12% of government expenditure. In 2018-19, spending on India's defence sector was nearly $63 billion, of which capital expenditure accounted for about 34%. During this period, total production by defence public sector undertakings (DPSUs) and the Ordnance Factory Board (OFB) amounted to about $ 8 billion, and India accounted for 15% of global arms imports.
The government recently increased foreign direct investment (FDI) limit from 49% to 74% through automatic route to push 'Make-in-India' in defence sector. The new industrial policy stresses on development of large platforms and complex systems which are currently imported, apart from focussing on futuristic technology.
It calls for inducting indigenous systems and limiting dependence on foreign sources to components and systems where no indigenous options are available.
"The Ministry of Defence can increase the share of spending on defence R&D and involve the private sector in related efforts. This could be done through open competitive bidding and involving the industry and academia as partners to DRDO (Defence Research and Development Organisation)," the draft policy says.
BusinessToday.In has seen DPIIT's strategy paper on reforming industrial growth in India. The department has sought comments from industry stakeholders on the policy and held a meeting last Friday to consult various representatives.
Copyright©2021 Living Media India Limited. For reprint rights: Syndications Today