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Budget 2021 | Defence continues to be a priority given precarious situation at Northern frontiers: Gaurav Mehndiratta

At the policy level, needs to work to make defence contracting simpler in order to bring it in line with the best business practices and introduce time-bound procurement process.

January 27, 2021 / 02:19 PM IST

Coming off a pandemic-hit year, Budget 2021 shall be an important and delicate task for the Government. Defence continues to be a priority area given the precarious situation at our Northern frontiers. In addition, the defence budget could be the government's tool to promote in-country manufacturing, jobs and exports to help the ailing economy.

A lot has been penned down in defence policy framework lately – import embargo, public procurement policy, the release of Defence Acquisition Procedure 2020 and offset guidelines, increase in Foreign Direct Investment (FDI) in defence sector to 74 percent- all focusing on localisation, Atma-Nirbhar Bharat and Make in India.

From Procurement standpoint, the key expectation from this Budget shall be an increased capital budgetary allocation to fast track some of the big-ticket programmes such as Multi-role fighter aircraft, NUH, LCAs, FICV etc.

Tax benefits/incentives such as a tax holiday could give the sector the same incubation period to attract large scale investment and growth as was once provided to infrastructure and telecom sector etc. In addition, wherever the specialised raw materials for aerospace & defence manufacturing are not available, schemes like PLI should be introduced for promoting in-country manufacturing. This could go a long way in helping set-up this extremely capital-intensive industry and promote job creation.

At the policy level, the government needs to work to make defence contracting simpler in order to bring it in line with the best business practices and introduce time-bound procurement process. Norms in relation to value addition, specifically where the raw material is not available in India should be rationalised. Also, offset regulations need to be revised to bring back aerospace sourcing and offset banking into the fold. The Indian industry would also welcome a more inclusive policy where the private sector is at a level playing field with the public sector by reducing nomination-based contracting to DPSU’s.

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While an updated defence acquisition policy pedestal has been set-up in 2020 by the MoD – a meaningful fund allocation coupled with tax incentives for achieving the ultimate objective of self-reliance would be the key expectation from the Finance minister in this year's Union Budget.

(Gaurav Mehndiratta is the Partner and Head - Aerospace and Defence at KPMG in India.)

Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Gaurav Mehndiratta is the Partner and Head - Aerospace and Defence at KPMG in India.
first published: Jan 27, 2021 02:18 pm

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