Most brokerage firms tracking the sector expect up to 10 per cent increase in allocation towards defence capex, which will be used for modernisation, procurement of technology and equipment, which would be beneficial for like and BEL.
The defence capex has been under pressure due to varied reasons, but the government has stepped up local manufacturing and modernisation efforts under the ‘Make in India’ campaign. The hope is that capex will gather pace from 2017.
“Jane’s Defense Budget Report by IHS Markit forecasts India to re-emerge as a key growth market for defence suppliers over the next three years,” Angel Broking said in a report.
“The capital outlay towards core defence services, which currently stands at Rs 78,586 crore, could increase 10 per cent in the forthcoming Budget. However, the challenge for the defence ministry is not Budget allocation, but execution,” it said.
The standing committee’s examination of past defence budgets revealed that the government’s ability to spend has come under pressure repeatedly. The defence Ministry has surrendered about Rs 35,000 crore from its capital allocation for the previous four years.
India ranks fourth in the list of top 10 defence spenders in the world, according to an annual Jane’s Defense Budgets Report. In the light of a rise in geopolitical tensions, there is a possibility of an increase in India’s defence Budget this year from $50.7 billion in 2016.
“We expect over 7 per cent increase in the defence capex, owning to the defence modernisation initiative, emerging security environment, fleet modernisation drive and large quantum of projects cleared by DAC,” brokerage India Nivesh said in a report.
“Defence capex has seen a 9-15 per cent under-utilisation during FY2013-16. We expect more favourable announcements for the MSME sector to encourage participation and widen the defence eco-system in the country,” it said.
The government should incentivise forming defence clusters by making modified special incentive package scheme. The move will be positive for foreign original equipment manufacturers for setting up plants through JVs in India.
The India Defense Technology fund should be raised to Rs 10 billion from current Rs 1 billion in 2016. It will benefit SME players and encourage R&D initiatives, experts said.
Source: The Economic Times
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