To woo private investments and encourage foreign players to explore business opportunities in the country, the government on Monday withdrew the Customs and excise duty exemptions that were applicable to products manufactured by the Ordnance Factories Board (OFB) and defence public sector undertakings (DPSUs).
While the decision — which was announced in the Budget — is justified by the government as one that will offer “level playing field” to private players, OFB and DPSUs have cited that the decision will shoot up the defence budget “significantly.”
“As a major game changer, Government of India has withdrawn excise and Customs duty exemptions presently available to goods manufactured and supplied to Ministry of Defence by Ordinance Factory Board and Defence PSUs vide Notifications No. 23/2015-Central Excise and No. 29/2015-Customs dated 30.04.2015. 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,” a statement by the commerce ministry said on Monday.
In contrast to the government’s ‘Make in India’ initiative, the statement further added, “With this initiative, the government has also fulfilled demand of foreign original equipment manufacturers (OEMs) such as Boeing, Airbus, Lockheed Martin, BAE Systems etc. who are actively exploring the scope of future investments in India.”
The mainstay of supplies to the defence ministry comes from 39 ordnance factories. Defence minister, Manohar Parrikar, in a bid to boost efficiency of these factories, had set a turnover target of Rs 20,000 crore to OFB over the next three years from the existing Rs 15,000 crore, Parliament figures reveal.
OFB imported components worth Rs 15,443.01 crore in 2010. A CAG report last month pegged OFB’s defence supplies at Rs 3,677 crore in 2012-13. Such expenses will now be subject to customs and will be borne by the defence ministry.
A senior OFB official said that the decision will affect the ongoing projects “unless the government backs it up with a concrete plan”. “For the annual acquisitions for the Army for example- the budget is sanctioned by the Parliament. The excise duty will shoot up the price of individual products,” said an official.
A senior official of a DPSU said, “This is a decision taken without consulting DPSUs. At least we have not been consulted. The decision will shoot the defence budget up. In reality, it is the DPSUs that need to be given level playing field along with private industry and not the other way round as the government claims. We have been used to operating with the exemption. Now, our finances will have to be reorganised.”