Poised for Phenomenal Growth, Indian Defence MRO Sector Has High Expectations from Budget 2023-24

With the traditional yearly affair of the country’s Ministry of Finance presenting the yearly Financial Budget on February 1, just round the corner, the demands and expectations from the Budget by different industrial sectors has also started trickling-in

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In this regard Jitender Mittal, CFO, Crown Group Defence spoke to Raksha Anirveda expressing his views regarding the Indian defence and aerospace sector’s MRO vertical’s expectations from this year’s budget.

Raising expectations globally, the Indian defence sector with its growing capabilities now needs budgetary support from the government. However, amidst the global slowdown and geo-political chaos, the government may find itself in a tough situation to present a balanced budget this year to realise its ambition despite the fiscal pressure.

 

Interacting with Raksha Anirveda, Jitender Mittal, CFO, Crown Group Defence said that the Defence and Aerospace is an important and key sector of the Indian defence structure. Following the recent policy initiatives for increased private sector participation in the defence sector and the government’s focus on ‘Make in India’ and ‘Atmanirbhar’ programmes, the industry has lot of expectations from the forthcoming budget, expecting a further fillip to the fledgling MRO vertical. The sector is looking forward to opportunities in the upcoming Budget 2023-24 to further increase and cement its growth in the future.

He said that during the last five years, the budget allocation for the defence sector has increased by 46%. With this increased budgetary support, the Government has placed modernisation and infrastructure development of the Armed Forces as the main focus of the National Security and Defence Planning process. In addition, he felt that Government of India’s programmes of ‘Make in India’ and ‘Atmanirbhar Bharat’ have opened tremendous opportunities of growth for industries related to the country’s defence sector.

 

Focussing on the industry’s expectations from the Budget, Jitender Mittal said that the government needs to focus more on expanding the industry’s R&D system, ensure speedy orders, creating more testing facilities and an ecosystem to support innovation for the defence and aero industry.

GoI’s programmes of ‘Make in India’ and ‘Atmanirbhar Bharat’ have opened tremendous opportunities of growth for industries related to the country’s defence and MRO sector

Expressing his views on the Corporate Tax for the industry, Mittal said that in India the present corporate tax rate is 22% (before surcharge and cess), while the global minimum tax rate, agreed amongst most nations, is 15%. The tax rate for new manufacturing companies in India is also 15% (before surcharge and cess). This can also be extended to MRO companies in Defence sector having technology partnerships with overseas OEMs, since they play a crucial role in maintaining the huge inventory of imported equipment and making defence sector self-reliant and primed for operations. Reduction in the corporate tax rate would help make Indian MRO companies more competitive and would help them capture the global market share as well. He said that the government in addition should also consider giving personal income tax concessions to foreign citizens working in the MRO sector.

 

On the issue of GST and customs duty rate (effective) levied on the purchase of components and spares, Jitender Mittal said that currently it stands at 5-28%, and this needs to be reduced substantially, as indigenisation of those equipment’s, spare parts and other components is going to take time, this should be in tune with the duties imposed by other countries to make the landed price competitive.

Army, Navy, Air Force and Coast Guard should also consider joining the TReDs platform. This will ensure prompt and competitive financing for MSMEs (MRO and other defence related suppliers), which could help resolve the issue of access to finance

Commenting on the role of MSMEs, Mittal said that India is the fifth-largest economy and is poised to be the third-largest in the near future, looking at a 5 trillion USD economy by 2047, joining the list of developed nations. To achieve these targets, India needs a strong and better-organised MSME sector. He further said that the TReDs (Trade Receivables Discounting System) platform has been created for faster settlement of dues to the MSMEs, and through this a large part of working capital finance requirement of MSMEs can be taken care of. But he felt that organisations like the Army, Navy, Air Force and Coast Guard should also consider registering at these platforms. This will ensure prompt and competitive financing for MSMEs (MRO and other defence related suppliers), which could help resolve the issue of access to finance.

Mittal also underlined the need for making timelines for payments from the government customers to the companies more streamlined and speedy. He felt that one of the key reasons why private players do not participate actively in this sector are the delays in the payments from the customers, in this case the government. In contrast, for any orders placed overseas, the policy allows for advance payments and full payments post-shipment immediately. Unfortunately, similar payment terms are not offered to Indian vendors making the business unviable or uncompetitive in many cases. Offering similar payment terms should be seriously considered, as this will provide a significant boost to ‘Making India’ completely ‘Atmanirbhar’.