India levels private/public playing field

The Indian government has withdrawn customs and excise duty exemptions for defence goods manufactured by ordinance factory board and defence Public Sector Undertakings (PSUs), it announced on 1 June.

With the withdrawal of tax exemptions, the government has effectively levelled the playing field between domestic private players and defence PSUs in the Indian market. Private sector manufacturers have long demanded parity with respect to central excise and customs duty payments.

Without the tax exemptions, defence PSUs no longer have a strategic advantage of quoting lower rates in open bids for defence contracts. The initiative has fulfilled the demand of international Original Equipment Manufacturers (OEMs) as well, including BAE Systems, Lockheed Martin, Airbus and Boeing, all of which are actively exploring potential investments in the country.

The Indian government has undertaken a number of initiatives so far to incentivise the private sector, including international OEMs, to enter its defence and civil aerospace sector as it pushes forward with its ‘Make in India’ campaign.

Rules and procedures have been simplified to promote private participation in defence manufacturing and exports, and to stimulate major manufacturing investments in India. The government has also increased the FDI cap in defence to 49% and de-reserved close to 60% of items required for industrial licence.