India Scraps Customs, Excise Duty Exemptions To Public Sector Defense Companies

The Indian government, in a move to encourage foreign defense manufacturing in India has withdrawn the Customs and excise duty exemptions that were applicable to products manufactured by the Ordnance Factories Board (OFB) and defence public sector undertakings (DPSUs).

The government on Monday in a notification said the steps will provide a level playing field to private players with the Ordinance Factory Board and Indian defense PSUs who enjoy these exemptions.

“This will provide a level-playing field... by taking away the strategic advantage with PSUs for quoting lower rates in open bids.

“With this initiative, the government has also fulfilled demand of foreign Original Equipment Manufacturers (OEMs) such as Boeing, Airbus, Lockheed Martin, BAE Systems etc which are actively exploring the scope of future investments in India,” a Commerce and Industry Ministry statement read.

It said the move will also send a definitive message to foreign OEMs that India is open to business for defense manufacturing.

The Indian aerospace and defense market is among the most attractive globally as the country is the highest importer of defense items in the world, it added.

The government has systematically opened up the sector for private investment by increasing FDI cap in defense of up to 49 per cent and rationalizing certain conditions.

Almost 60 per cent items required for industrial license have now been de-reserved.

Defense manufacturing is one of the key sectors among the 25 sectors identified under the Make-in-India campaign.

“A number of initiatives have been taken by the new government to incentivize the private sector, including foreign OEMs, to engage in the Defense and Civil Aerospace sector,” the statement said.

It added that a series of consultations have been held across ministries and departments to enable simplification of rules and procedures to promote private participation in defense manufacturing and exports.