Make in India arms too? Jaitley says new defence manufacturing policy soon

The government is in “advanced stages” of formulating a new policy to increase domestic defence manufacturing and reduce dependence on imported high-tech military equipment, Finance and Defence Minister Arun Jaitley said on Friday.

“India is the world’s largest arms importer, spending some 1.8 per cent of its GDP (gross domestic product) on defence. It imports about 70 per cent of defence equipment, a proposition which the government wants to change,” Jaitley said at an event organised by the industry body CII.

“We are in the advanced stages of formulating a policy where we can ensure that instead of just being buyers, on the strength of technological and other tie-ups, India also becomes a manufacturing economy,” he said.

Jaitley, however, did not give additional details on the proposed policy. “The response that we have from domestic and international industry has been quite encouraging,” he added. The government has pledged to spend $250 billion by 2025 on weapons and military equipment.

He also promised not to spring any surprises in fixing tax rates under the goods and services tax (GST) regime, saying they would not be “significantly different” from the current levels.

He, however, said companies should pass on to consumers the benefit of reduction in taxes under the GST, which will eliminate the current compounding effect of different central and state levies.

On the Foreign Investment Promotion Board (FIPB), the minister said the abolition of the 25-year-old agency was in the final lap and this would set the stage for more reforms in the foreign direct investment policy.

He also said some “tough steps” were required so that India increasingly became a tax-compliant society. “I am now in the final stages of doing away with the FIPB because 90 per cent of the investment in India comes under the automatic route. So for the balance 10 per cent, do we need multiple forums to give approval or (do) we need just one forum in one ministry?” Jaitley also sounded a note of caution on protectionism, saying the world should debate whether it would make the global economy more efficient or sluggish. The minister, however, took comfort from the fact that voices of protectionism are not heard in India.

“...You suddenly found a contrarian trend now moving in the developed economies itself. The reasons would be different in each economy and the trend really is can we reverse this whole process. And that’s a little worry which does exist,” Jaitley said, while referring to the growing voices of protectionism, especially in the United States.