New Delhi: With exemptions being granted for defence sector from customs duty and Goods and Services Tax (GST) which came into effect from October 1, defence budget will be augmented by more than Rs 60,000 crore over the next five years, according to sources.

The defence ministry had been hit by the imposition of customs duty in 2016 on all imports of military equipment, followed by the GST the next year. Although the two levies were aimed at promoting indigenous production of defence equipment, it soon became evident that there was a lack of capability to produce certain items locally.

With the ministry forced to spend a significant chunk of its budget on imports, the twin taxes reduced the availability of modernisation budget leading to the armed forces cutting back on plans to acquire new systems.

A key factor in the exemption is that it has been provided for a select number of defence items and for a limited period of five years, during which it is estimated that domestic production will not be available. This would safeguard interests of the Indian industry and allow it to provide alternatives after the five year window, the sources said.

Officials said that around Rs 25,000 crore will be saved over the next five years on account of the rollback of customs duty on the import of defence equipment that is not manufactured in India while GST exemptions will augment the defence budget by Rs 35,000 crore.