NEW DELHI — Defence Minister Rajnath Singh told a gathering of industry leaders on 9 October that expenditure on research and development should be treated as an investment rather than a cost. The statement came as part of a broader push to strengthen India’s indigenous defence manufacturing base and reduce dependence on imports.
R&D as a Capital Investment
Singh explained that the government’s current procurement strategy encourages firms to allocate significant resources to R&D, but the tax and accounting treatment of those costs has not kept pace with the industry’s needs. By reclassifying R&D outlays as capital expenditure, companies would gain access to better financing terms and a clearer path to profitability.
The minister cited the Defence Production Policy 2025, which earmarks 15% of the defence budget for domestic production, as a framework that could be complemented by a more favourable tax regime for R&D. He added that such a shift would align India’s defence industry with global best practices, where R&D is often financed through long‑term capital structures.
Industry Response and Funding Gaps
Raj Kumar Pandey, chief executive of the Association of Defence and Security Manufacturers (ADSL), echoed the need for sustained funding. In an interview with Defence Watch, Pandey said that manufacturers require either firm orders or dedicated capital to sustain R&D pipelines. He noted that many private OEMs struggle to secure the necessary working capital, which hampers their ability to innovate.
“The industry is at a crossroads where the lack of long‑term orders and capital inflows limits our capacity to develop indigenous solutions,” Pandey said. “A clear policy that treats R&D as an investment would provide the financial cushion needed to bridge this gap.”
Foreign Firms and Domestic Collaboration
In a related development, a report by NST Online highlighted that foreign defence companies are being urged to partner with domestic firms. The article noted that the government’s Make‑in‑India initiative requires foreign players to collaborate with Indian manufacturers on technology transfer and joint production.
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