Budget 2019: Defence gets duty exemption on its imports, no big allocation, say experts

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Updated: July 5, 2019 5:31:02 PM

Budget 2019 India: In the Interim Union Budget 2019-20, presented in earlier this year on Feb 1, the budgetary allocation crossed Rs 3 lakh crore for the first time, as opposed to the allocation of Rs 2.95 lakh crore in 2018.

budget 2019, budget 2019 india date, defence budget, budget highlights, nirmala sitharaman, budget 2019 india, budget 2019 date july, buget 2019 expectations, budget 2019 pdf, budget 2019 time, budget 2019 news, budget 2019 july, budget 2019 liveBudget 2019-20: Analysts called for an increase in the defence budget to 2 per cent or 2.5 per cent of GDP and so on.

Union Budget 2019 India: Import duty on defence items, which are not manufactured in India has been removed. This was the only aspect pertaining to Defence Budget which featured in the maiden budget speech of the former defence minister.

In the budget for 2019-20, Rs 3, 18,931.22 crore has been earmarked for Defence (excluding Defence Pension), Rs 2, 10,682.42 crore for revenue expenditure and Rs 1, 08,248.80 crore for Capital expenditure for modernisation of armed forces. The finance minister Nirmala Sitharaman kept the financial outlay for the defence sector constant as it was in the Interim Budget.

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In the Interim Union Budget 2019-20, presented in earlier this year on Feb 1, the budgetary allocation crossed Rs 3 lakh crore for the first time, as opposed to the allocation of Rs 2.95 lakh crore in 2018.

Welcoming the removal of the import duties, Deputy Chief of Air Staff, Air Marshal Nirdosh Tyagi (retd) tells Financial Express Online, “The amount saved on duties would be available for modernisation expenditure. Other than that, there appears to be no change. It would have been unrealistic to expect a major deviation from the allocations for defence made in the interim budget.”

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“A combination of the floundering economy, the pain of rural distress and uncertain international trade environment, had left no room for manoeuvre. Undoubtedly, the Armed Forces need more funds for modernisation,” he points out.

Analysts called for an increase in the defence budget to 2 per cent or 2.5 per cent of GDP and so on. The main issue is whether any cut in social expenditure is desirable at this stage, to divert funds for procurement of weapons.

According to Tyagi, “There is another important aspect which is often overlooked while commenting on the defence budget. Capital expenditure requires a fair bit of forward planning. A major procurement scheme would take 3 to 5 years to reach the contracting stage after its initiation. Foreign Military Sales of the US and other forms of government to government deals take much less time to fructify, but even these are difficult to conclude within a span of one year.”

Therefore, even if there is a surge in allocations for capital procurements, it would not be possible to bring in a new scheme to spend the amount. Its impact would be limited to schemes which are ready for contracting but are being kept on hold for want of funds. The number of such cases is never very large because the Acquisition Wing of MoD directs its processing resources to the schemes which have a good possibility of fructification within the concerned financial year.

About the minimal enhancement in Capital Budget, Tyagi says, “The short point here is that any enhanced allocation in Capital Budget would have been difficult to utilise within the remaining nine months of the Financial Year 2019-20. The relief provided by import duty the exemption comes as a bonus and MoD should endeavour to utilize the additional amount gainfully.”

Says Amit Cowshish, former Financial Advisor (Acquisition), Ministry of Defence, “The finance minister has proposed no change in the defence outlay in the regular budget presented today. She, in fact, made no mention of defence in her speech, except in the passing in the context of withdrawal of basic customs duty on import of defence equipment that is not made in India, which should reduce the burden on the defence budget to some extent.”

“This should not be seen as an indication of the government’s order of priorities. The capital outlay of more than Rs one lakh crore allocated in the interim budget is not an insignificant amount. The challenge has been – and continues to be – to utilise it optimally,” Cowshish observes.

The Army, Navy, and Air Force are presently paying customs duty along with the GST on the defence hardware which is being imported. As reported earlier, under the tax reforms introduced in 2017, all taxes were merged, except the basic customs duty. Senior officers explained that these additional duties and GST were having an adverse impact on the budget slated for procurements.

Besides the basic customs duty, and the GST, the services are also required to pay additional integrated GST (IGST) on the inter-state imports/exports. Presently, the GST imposed is around 12 per cent of the Capital budget allocation for the armed forces which yearly totals up to Rs 8000 crore.

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