India, the world’s largest arms importer, is in advanced stages of formulating a policy to promote domestic manufacturing of defence equipment to cut import bills and create local jobs, finance and defence minister Arun Jaitley said on Friday. “India is the world’s largest arms importer, spending some 1.8% of its GDP on defence. It imports about 70% of defence equipment, a proposition which the government wants to change,” he said, speaking at an event organised by industry chamber CII.
The minister did not elaborate on the specifics of the policy on the cards.
Currently, indigenous content in defence acquisition is about 35%. The government’s target is to achieve about 70% indigenisation in defence procurement by 2027. India’s 2017-18 defence capital expenditure is budgeted at `91,580 crore, 25% of the the country’s total defence budget. The capital outlay includes expenditure on purchasing defence equipment, weaponry, aircraft, ships, land, and construction of roads and bridges in border areas.
Among several steps taken to promote “Make in India” in defence, the Modi government has allowed foreign direct investment (FDI) up to 49% through the automatic route in the sector; beyond 49%, FDI is allowed under approval route on the condition of India getting access to modern technology. Policymakers have noted that if even a portion of defence requirements can be met through indigenous manufacture facilitated by FDI, India would save a lot of foreign exchange. Defence manufacturing could contribute to GDP and give a significant thrust to employment generation.
“The response (on setting up manufacturing units in India) that we have from domestic and international industry has been quite encouraging in itself,” Jaitley said. The government has pledged to spend $250 billion by 2025 on weapons and military equipment. On the goods and services tax (GST), the minister said the government would not to spring any surprises while fixing tax rates under the new indirect tax regime.
Tax rates on different commodities under the new regime will not be “significantly different” from current levels. He urged companies to pass on to consumers the benefit of any reduction in taxes under GST regime due to elimination of the current compounding effect of different central and state levies. The GST Council, headed by Jaitley, is scheduled to meet in Srinagar on May 18-19 to finalise tax rates on different goods and services. GST is proposed to be rolled out from July 1. The minister also noted that abolition of the over two-decade-old Foreign Investment Promotion Board was in the final lap.