Defence acquisitions hit by fund shortages
The Defence Ministry’s funds for acquisitions have fallen short even at Rs 93,982 crore in the current fiscal because a big chunk of money going into paying the customs duty that was not levied on the defence purchases till 2016.
Instead of seeking abolition of the customs duty, the ministry has sough more funds in the revised budgetary estimates for the second half of the current fiscal after September. It can’t seek duty abolition since it was introduced three years ago to give a ‘level playing field’ to the private players, both international and Indian military equipment manufacturers.
Nine defence public sector units and over 20 ordnance factories under the defence ministry used to enjoy the duty exemption all these years but the government slapped the duties varying from 18 to 28 per cent on them as a part of policy to encourage the private sector enter the defence production.
It is this ‘level playing field’ extended to the private players that has resulted in imposition of the custom duty shooting up prices of various defence procurements as the ministry has started incorporating “payment of customs and excise duty by suppliers” in the future contracts since March this year.
The request to the finance ministry for more money is to meet the requirement of the duties that the defence PSUs and ordnance factories have to pay on import of parts
Instead of seeking abolition of the customs duty, the ministry has sough more funds in the revised budgetary estimates for the second half of the current fiscal after September
from Russia for Brhmos missiles, Sukhoi jet, T-90 tanks and warships as also for import of engines from the US for Tejas and some parts of the long-range missiles and avionics from Israel and heavy-duty trucks imported fro an European country.
A sheer fact that imposition of the duty has increased the contracted prices of these defence purchases is justified on the ground that the private industries that want to enter into the defence production will otherwise run away if they have to pay this duty over and above the government procurement.