The forthcoming Budget could reinstate the customs duty exemption on direct imports of specified goods for defence purposes as its withdrawal in 2016 Budget has only added to the fiscal woes of the Defence Ministry.
A Finance Ministry official said that his ministry had agreed to the Defence Ministry’s plea that the 16 per cent import duty on defence goods and services be withdrawn as the duty component was being paid out of the latter’s budgetary allocation, and hence the national exchequer. He said in high value acquisitions, foreign vendors quoted the basic price in the tenders, leaving the customs duty burden on the Defence Ministry. “It was resulting in an annual outgo of Rs 7,000 to Rs 8,000 crore,” he said.
Including the IGST, the Defence Ministry’s burden increased to roughly Rs 12,000 crore per annum, he added. A rough estimate had showed that the Defence Ministry would have to cough up Rs 45,000 crore in the next five financial years on both counts.
Last year, Defence Ministry had proposed that it be refunded the pay out in order to fully utilise its annual outlay for more purchases of actual goods and services. However, this was not accepted by the Finance Ministry as 40 per cent of the collected revenue had been shared with the states.
“The only option before us is to discontinue the customs duty imposition in this Budget,” said the Finance official. A proposal to bring back the customs duty exemption would be placed before the Cabinet for approval, he added.
In his Union Budget for 2016-17, Finance Minister Arun Jaitley had announced the withdrawal of customs duty exemption on direct imports of defence goods to encourage local manufacturing under ‘Make In India’ programme.
He also withdrew basic customs duty exemption on military equipment and stores imported by contractors of government-controlled public sector undertakings (PSUs) or sub-contractors of such PSUs for defence purposes.
India’s 60 per cent of defence requirements, most of it big ticket purchases, are met through imports.