In a big move to bolster private participation in the defence manufacturing sector, the government has given a level playing field to domestic private companies by scrapping tax incentives to public sector firms making defence products.
In a notification, the government said that it has withdrawn the excise and customs duty exemptions presently available to goods manufactured and supplied to Ministry of Defence by Ordinance Factory Board and Defence PSUs. This takes away the strategic advantage enjoyed by PSUs for quoting lower rates in open bids.
This was a long-standing demand from domestic defence players and foreign original equipment manufacturers (OEMs) such as Boeing, Airbus, Lockheed Martin, BAE Systems, who were actively exploring the scope of future investments in India.
According to the government, the move will also send a definitive message to foreign OEMs that India is open to business for defence manufacturing.
The Indian aerospace and defence market is counted among the most attractive globally as India is one of the biggest importer of defence equipment in world.
Last year in August, the government had increased the foreign direct investment cap in defence to 49 per cent from the existing 26 per cent, as part of its plans to boost domestic manufacturing in the industry. Still, over two thirds of military hardware requirement is met through imports.
Defence manufacturing is one of the key sectors among 25 sectors that have been identified under the Make in India campaign launched by the Prime Minister Narendra Modi-led NDA government.
Meanwhile, defence minister Manohar Parrikar said that the government is mulling to float special zones for defence manufacturing and a proposal in this regard is under consideration.