Budget 2023: what the defense industry expects

The government had allocated Rs 5.25 lakh crore for the sector in the Union Budget 2022-23. (File)

New Delhi:

The 2023-24 EU budget will be presented by Finance Minister Nirmala Sitharaman on 1 February. The defense manufacturing sector hopes that plans and policy decisions announced by the minister will boost the industry’s output.

In recent years, the central government has reduced imports while boosting production in the defense sector. India’s defense exports have increased eightfold, from Rs 1,521 crore in 2016-2017 to Rs 12,815 crore in 2021-22. Capital expenditure on imports by armed forces fell from 41.89% percent in 2019-20 to 36% in 2020-21.

The government had allocated Rs 5.25 lakh crore for the sector in the Union Budget 2022-23. Domestic capital acquisition accounted for 64% of the 2021-22 defense services capital acquisition budget. In the following financial year this was increased to 68%.

According to industry insiders, the budget should boost the acquisition of defense start-ups with innovative products. Tax sops and GST exemptions will encourage industry to further invest in innovation in the defense manufacturing sector, they added. The defense manufacturing sector expects faster tracking of tenders to boost industry growth in India.

In December last year, the Ministry of Defense approved the procurement of weapons worth Rs 84,328 crore to boost the combat capabilities of the armed forces. These include approval for six capital purchases for the Indian Army, 10 for the Indian Navy, six for the Indian Air Force and two for the Indian Coast Guard.

The government has also set up two Defense Industrial Corridors (DICs), one in Uttar Pradesh and one in Tamil Nadu. These have been set up to attract investments of up to Rs 10,000 crore in each corridor. Emphasis has also been placed on promoting exports and liberalizing foreign investment. So far, four Positive Indigenization Lists have been released by the Department of Defense. The list consists of various defense equipment that will be manufactured domestically.

The government has also launched Production Linked Incentive (PLI) schemes in 14 sectors, with a total investment of Rs 1.97 lakh crore. The scheme is aimed at stimulating domestic production, investment and export. In September 2021, the scheme will be extended to the manufacture of drones and drone parts.