No Custom duty on defence import – Union Budget

No Custom duty on defence import – Union Budget

Sun, 07/07/2019 - 23:30
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By Rohit Srivastava

The newly elected Union Government at New Delhi, in its first budget, presented by Finance Minister Nirmala Sitharaman, on July 5, allocated over 15 per cent of the funds to defence. She also announced exemption from the basic customs duty to defence equipment not manufactured in India.

Out of the budget allocation of Rs27,86,349 crore, Rs 3,18,931.22 crore has been earmarked for Defence (excluding Defence Pension). This is around eight per cent more than the Budget Estimates and Revised Estimates for the last financial year.

“Total Defence Allocation (Rs4,31,010.79 crore), including Defence Pension, accounts for 15.47 per cent of the total Central Government expenditure for the Financial Year 2019-20,” government said.

Although the government has committed a significant part of expenditure on defence, the annual raise is not expected to be sufficient for the modernisation plan.

Speaking on the defence allocation, Lt. Gen Subrata Saha (retd) said, “It is going to be a tough call for prioritisation for modernisation and sustenance! Major big-ticket programs like MMRCA, MiG-29 UPG, additional Su-30MKI, LCA Tejas, Mi-17 V5, Naval ships are in the pipeline in addition to committed liabilities.”

Since last year October India has signed defence deals worth $ 15 Billion with Russia and is in process of purchasing $10 billion worth of weapons from the USA. India has also started the process for Naval Utility Helicopter and conventional submarine procurement through the Strategic Partnership Model.

Indian industry had two main demands from the government - reimbursement of the GST on defence products and exemption of customs duty on defence products. The government ignored the first demand but agreed on the later. 

Highlighting the decision, Defence Minister Rajnath Singh, in a tweet, said, “In a significant development, import of Defence Equipment not manufactured in India has been exempted from Basic Customs Duty. This will have an impact of augmenting the Defence Budget by Rs. 25,000 crores on account of savings in expenditure on Customs Duty (CD) over the next 5 years.”

Reacting to this development, JD Patil, Whole-time Director (Defence), L&T, said, “While the defence capital budget for armed forces modernisation remains unchanged from Interim budget numbers, the move to exempt customs duty on imports of equipment ‘not being manufactured in India’ has been announced. The custom duty Exemption proposed is expected to increase the Fund availability to the Armed Forces, of the order of 6 per cent of the Committed Liabilities.”

“This will enable the armed forces to sign contracts worth 7 to 8 times the Savings from CD Exemption, considering first-year outlay of advances which is typically 10-15 per cent of the contract value. In a nutshell, if the interim budget had enabled contract placement worth 100, the CD exemption announced in the final budget would take this number to 140-160, which is a welcome move,” he added.

For Defence Pension, an amount of Rs 1,12,079.57 crore has been provided in Budget Estimate 2019-20.