A budget for soldiers and workers

Along with the impending finalisation of the Defence Procurement Procedure, the Budget presents a milestone that will set the stage for the coming year.

Like every year, the Budget will be seen by the armed forces, the Indian industry and observers alike, as a signal of intent from the government.

Broadly speaking, two priorities drive India today — first is better equipped and better paid armed forces, and second is the creation of a wide-spread, robust and indigenous manufacturing base. While both the objectives are journeys rather than milestones, the government has taken a number of steps on both the fronts. These along with the ‘Make in India’ push are expected to provide the framework on which the Union Budget for defence will be constructed.

Explicit expectations
An expansion in the capital budget, focused on new acquisitions, is expected. The Armed forces require substantial spends in both new equipment procurement, as well as to cater to obsolescence. We also need to remember that our country’s spends are really quite miniscule when compared with other countries, notably China.

Traditionally, Indian suppliers found it tough to be integrated into global A&D (aerospace and defence) supply chains because of the difference between profitability expectation of Indian companies (who have a much higher cost of capital to deal with) and those of global players (who have traditionally had supply chain partners operating with EBIT levels in single digits).

This budget could be a great opportunity to announce a model that provides manufacturers a cheaper source of finance, thereby making them relevant to global OEMs.
(The writer is a Partner at Roland Berger)

Measures to rationalise cost structures for services like maintenance, repair, overhaul, and an impetus to nascent activities like warehousing, fit outs and completions — areas where India has potential but business is currently going outside.

Globally, A&D industry thrives in manufacturing ecosystems. For A&D industry in India to step up and realise the ‘Make in India’ thrust, the Finance Ministry will have to announce substantial fiscal and tax incentives for both developers as well as units.