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Tax incentives to defence R&D will boost the industry: ASSOCHAM-BDO study

By Swati Deshpande,

Added 06 June 2019

Recommends rationalizing taxation for MRO segment as well


Tax incentives to defence R&D will boost the industry

ASSOCHAM-BDO joint study suggests that the government should allow a minimum of 51 per cent FDI in defence sector without any riders to linkages with ‘modern technology,’ so as to enable international defence companies to exercise adequate control over joint venture companies, intellectual property rights (IPR) and product quality.

“The increase in FDI limit will bring in the capital for establishing new facilities and scaling up current facilities while benefitting India through large scale job creation,” noted the study titled, ‘Indian aerospace manufacturing ecosystem,’ conducted by The Associated Chambers of Commerce and Industry of India (ASSOCHAM) jointly with global advisory services firm BDO.

It also said that government must restore and strengthen tax incentives for R&D activities to encourage investments in technological innovations by MSMEs. “This will encourage foreign defence companies to bring best practices and technology to create domestic R&D partners and contribute towards a robust aerospace ecosystem.”

In addition, to boost foreign investments in aerospace R&D, it should be made as an eligible activity for discharging offset obligations.

Noting that MRO industry, which plays significant role in supporting aerospace domain, has been marred with high tax rates in India and thus has been losing business to facilities abroad, the ASSOCHAM-BDO study recommended rationalising taxation for MRO segment and granting it infrastructure status to attract investments in this space, which would in turn strengthen overall aerospace ecosystem in India.

The study also said that development and transfer of high-end technology is crucial to boost aerospace manufacturing ecosystem. “Government must enable ease of ToT and ensure EoDB for emerging MSMEs so as to enable them to develop capabilities to be part of global supply chain.”

It further stated that given the industry is extremely capital-intensive, steps towards creating infrastructure and policy environment would propel growth of small and medium enterprises.

The study also impressed upon an urgent need to introduce apprentice programs across universities to boost the availability of skilled manpower at various levels of the aerospace industry.


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