To level the playing field, govt withdraws sops for defence PSUs

While the decision is justified by the government as “level playing field” to private players, OFB and DPSUs have cited that the decision will shoot up the defence budget “significantly.”

Written by Pranav Kulkarni | New Delhi | Published: June 2, 2015 2:26 am

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“As a major game changer, Government of India has withdrawn excise and Customs duty exemptions presently available to goods manufactured and supplied to Ministry of Defence by Ordinance Factory Board and Defence PSUs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.

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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.”

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  1. A
    Jun 2, 2015 at 1:28 pm
    Taxing or Exempting a Government Enterprise will make what difference ? For the Government the money goes out from one pocket and is kept in another ? does it make any REAL sense ?
    1. N
      Jun 3, 2015 at 8:09 pm
      Yeah, now maybe India will be able to produce a fighter plane that works rather than wait for the sarkari workers trying to create one for the last 50 years at Hindustan Aeronautics or whatever it is called. And maybe the private sector will build the armaments rather than just keep importing them from the West. Well, time to close up some shops and may be rename Air India to Babu or Neta Airlines.
      1. Arun Kumar
        Jun 2, 2015 at 9:53 am
        About time. The OFBs and DPSUs had become mediocre and lazy because of such favouritism.
        1. A
          Jun 2, 2015 at 9:41 am
          IS INDIA READY for Private and International players in defence? .............. has everybody forgotten Kargil Coffins? are there enough safe guard to prevent infiltration in Defence Community .................. ON TOP of the foolishness by thus NATIONALIST govt. to open NUKES for US supervision ................... strangely SANGH parivar is silent ........they are interested only in RIOTS it seems ..................
          1. Krishna Govil
            Jun 2, 2015 at 3:30 pm
            sell off all the PSUs Government has no business to be in business
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