Trending News
Home / Military / Doctrine & Strategy / India launch Defence Policy to boost indigenous manufacturing and expedite procurement of defence equipment and advanced technology

India launch Defence Policy to boost indigenous manufacturing and expedite procurement of defence equipment and advanced technology

India faces a very challenging strategic environment, with its immediate opponents possessing significant capabilities and militaries that are modernizing rapidly. India, which in the past was involved in an armed conflict with both China and Pakistan, continues to share an uneasy relationship with China and an outright hostile relationship with Pakistan. There is the need to keep the armed forces operationally ready at all times, to combat perpetual threats along active borders and to respond to national and regional situations. On the other hand India is major importer of its  defense requirements.

 

The second challenge for Indian Defence is India’s dismal record of indigenization in Defence sector. India ranks among the top 10 countries in the world in terms of its military expenditure and import of defense equipment. It allocates about 1.8% of its GDP to defense spending, of which 36% is assigned to capital acquisitions. However, only about 35% of defense equipment is manufactured 
in India. Moreover, even when defense products are manufactured domestically, there is a large import component of raw material at both the system and sub-system levels. Between 2014-2018, India was ranked as the second largest importer of defense equipment, behind only Saudi Arabia. The acquisition of defense equipment is mainly driven by the need to gain a significant technological advantage over Pakistan, while retaining a level of strategic parity with respect to China.

 

Indigenization is only route forward as it is cheaper to build, operate and maintain, results in building of strong defence industrial base and growth of R&D leading to strong technology innovation ecosystem. It is also insurance against denial of critical weapons and spares by foreign countries in crisis or conflicts in pursuit of their political or strategic interests.

 

Make in India is an initiative launched by the Government of India to encourage multi-national, as well as national companies to manufacture their products in India. It was launched by Prime Minister Narendra Modi on 25 September 2014. India emerged, after initiation of the programme in 2015, as the top destination globally for foreign direct investment (FDI), surpassing the United States of America as well as the People’s Republic of China. In 2015, India received US$63 billion in FDI. The major objective behind the initiative is to focus on job creation and skill enhancement in 25 sectors of the economy. The initiative also aims at high quality standards and minimising the impact on the environment. The initiative hopes to attract capital and technological investment in India.

 

Indian companies were awarded defence contracts worth $37 billion during 2016-19, defence minister Rajnath Singh said in Feb 2021, adding that New Delhi will endeavour to bring down its defence equipment import bill by at least $2 billion by 2022. Speaking at an event that is part of the three-day Aero India show, Singh said India plans to scale up its domestic military hardware manufacturing base from the current $11 billion to $25 billion by 2025. “Of this, we further intend to create an export component of $5 billion,” he said on the last day of the Aero India show.

 

In his speech in the Aero India show, Singh said there were 128 MoUs (memoranda of understanding or preliminary pacts) signed besides 19 transfers of technology agreements. There were 18 new product launches that happened during the event, he said. “Further, 45 MSMEs (micro, small and medium enterprises) participating in Aero India have already bagged orders worth ₹203 crore,” Singh said adding that this was a “major achievement.”

 

Paving way for `Atma Nirbharta’ (self-reliance) in defence sector, Finance Minister Nirmala Sitharaman, on May 16, 2020, announced policy and structural reforms, which include : gradual banning of imports of select weapon systems ; corporatisation of Ordnance factories; enhancement of Foreign Direct Investment in defence sector on automatic route; and faster defence acquisitions based on `realistic’ General Staff Qualitative Requirements of the services.

 

From raising foreign direct investment (FDI) in defence manufacturing to creating a separate budget for buying locally-made military hardware and notifying a list of weapons/equipment that cannot be imported, the government had announced a raft of measures to boost self reliance in the defence sector in May 2020.

 

The defence ministry has initiated a series of measures to promote the domestic defence industry. The ministry has set a goal of a turnover of USD 25 billion (Rs 1.75 lakh crore) in defence manufacturing in the next five years that included an export target of USD 5 billion (Rs 35,000 crore) worth of military hardware.

 

Finance Minister Nirmala Sitharaman announced May 16 the corporatization of the Ordnance Factory Board, or OFB, that manages 41-odd ordnance factories located across the country. This change is expected to double OFB’s turnover to approximately $4 billion by 2025 and, in the process, address concerns about the quality of its products. The decision  after facing stiff opposition from the employees’ federations was referred to  Empowered Group of Ministers, headed by Defence Minister Rajnath Singh to address their concerns.

 

The cap on foreign direct investment, through the automatic route was raised to 74 percent in September 2020, while higher investment, wherever it facilitates access to modern technology or it is considered justifiable on other grounds, will continue to be subject to government approval. This increase in the cap comes with some riders, one of which is that the investment shall be subject to scrutiny on grounds of national security and that the government reserves the right to review any foreign investment in the defense sector that may or may not affect national security. This introduces an element of uncertainty, not least because the notion of national security is fluid.

 

Uunder the “Buy (Global — Manufacture in India)” category that replaces the “Buy and Make (Indian)” category in DAP 2020, foreign original equipment manufacturers  will have the option of manufacturing the equipment contracted by the MoD through their own subsidiaries, if they do not want to do so through joint ventures or other Indian production agencies.

 

Import Embargo of 1010 items

Defence minister Rajnath Singh said in August 2020  said that the government has prepared a list 101 items on which there would be an embargo on import to give a push to Prime Minister Narendra Modi’s ‘Atmanirbhar Bharat Abhiyan’ (Self-Reliant India Movement). Announcing the development on Twitter, Singh said it would be a big step towards self-reliance in defence. The list includes artillery guns, missile destroyers, ship-borne cruise missiles, light combat aircraft, light transport aircraft, long-range land attack cruise missiles, communication satellites, basic trainer aircraft, multi-barrel rocket launchers, a variety of radars, assault rifles, sniper rifles, sonar systems, mini UAVs and different types of ammunition. The list also spells out when the embargo kicks in for different items — between 2020 and 2025.

 

All necessary steps would be taken to ensure that the timelines for the production of the equipment on the negative import list are met, Singh said. “The list also includes, wheeled Armoured Fighting Vehicles (AFVs) with indicative import embargo date of December 2021, of which the Army is expected to contract almost 200 at an approximate cost of over Rs 5,000 crore,” the minister said. He said the ministry has split the capital procurement budget for 2020-21 between domestic and foreign capital procurement routes. “A separate budget head has been created with an outlay of nearly Rs 52,000 crore for domestic capital procurement in the current financial year,” he said.

 

The list of weapons banned for import will be reviewed every year and more items will be added to it after discussions with the department of military affairs (DMA). This implies India will have to compulsorily develop technology for the defence systems and platforms figuring on the negative import list. “More such equipment for import embargo would be identified progressively by the DMA in consultation with all stakeholders. A due note of this will also be made in the Defence Acquisition Procedure to ensure that no item in the negative list is processed for import in the future,” the minister said.

 

The list has been prepared by the ministry after several rounds of consultations with all stakeholders, including the military and the industry, and factoring in future capabilities of the defence sector to locally manufacture equipment and ammunition. “Almost 260 schemes of such items were contracted by the Tri-Services at an approximate cost of Rs 3.5 lakh crore between April 2015 and August 2020. It is estimated that contracts worth almost Rs 4 lakh crore will be placed upon the domestic industry within the next 6 to 7 years,” Singh said. One of the key responsibilities assigned by the government to the DMA, headed by chief of defence staff General Bipin Rawat, is to promote the use of indigenous military equipment in the armed forces.

DRDO identifies 108 military systems for production by domestic industry

In August 2020 it was reported taht India’s premier defence research institute DRDO has identified 108 military systems and subsystems like navigation radars, tank transporters and missile canisters for the domestic industry to design, develop and manufacture. The list of the items was handed over to Defence Minister Rajnath Singh by a high-level delegation from the Defence Research and Development Organisation (DRDO), the defence ministry said.

 

It said the DRDO will also provide support to industries for design, development and testing of these systems on a requirement basis, adding the initiative is in sync with the government’s focus on achieving self-reliance in the defence sector. The DRDO has set a target of next year for developing the systems and subsystems. “All the requirements of these systems by R and D establishments, armed forces, and other security agencies can be met through development contracts or production orders on suitable Indian industry. This will allow DRDO to focus on the design and development of critical and advanced technologies and systems,” the ministry said in a statement.

 

“Responding to the clarion call given by the Prime Minister for Atmanirbhar Bharat (self-reliant India), the DRDO has taken several initiatives to strengthen the indigenous defence ecosystem,” the ministry said. It said the present industry base for DRDO consists of 1800 MSMEs along with defence public sector undertakings, Ordnance Factories and large scale industries.

 

“DRDO has already taken major initiatives through various policies to involve Indian industry as development cum production partners (DcPP), offering its technology to industry at nominal cost and providing free access to its patents,” the ministry said. “This initiative will support the fast-growing Indian defence industrial ecosystem and will help the industry to contribute towards ‘Atmanirbhar Bharat’ in a big way,” it added. The list of items identified by the DRDO for domestic production included mini and micro UAVs, mountain footbridge, modular bridge, mines laying and marking equipment, armoured engineering reconnaissance vehicle and anti-terrorist vehicle (ATV).
It also comprised tank transporter, missile canisters, missile storage container, marine rocket launcher, satellite navigation receivers, navigation radars, high nitrogen steel among others. The timeline for developing some of the systems and subsystems has been mentioned as 2020.

Gradual improvement in Defence Procurement Procedure

The aim of  Defence Procurement Procedure (DPP) is to ensure timely procurement of military equipment, systems and platforms as required by the Armed Forces in terms of performance capabilities and quality standards, through optimum utilisation of allocated budgetary resources; while enabling the same, DPP will provide for the highest degree of probity, public accountability, transparency, fair competition and level-playing field.

 

In addition, self-reliance in defence equipment production and acquisition will be steadfastly pursued as a key aim of the DPP.“The Defence Production Policy promulgated by the Government, aims at achieving substantive self-reliance in the design, development and production of equipment, weapon systems, platforms required for defence in as early a time frame as possible, creating conditions conducive for private industry to take an active role in this endeavour; enhancing potential of Small and Medium Enterprises (SMEs) in indigenisation and broadening the defence R&D base of the country,” says MOD.

 

The first Defence Procurement Procedure -2002 (DPP-2002) came into effect from 30 December 2002 and was applicable for procurements flowing out of „Buy‟ decision of Defence Acquisition Council (DAC). The scope of the same was enlarged in June 2003 to include procurements flowing out of “Buy and Make‟ through Imported Transfer of Technology (ToT) decision. The Defence Procurement Procedure has since been revised in 2005, 2006, 2008, 2009, 2011,  2013, and 2016 enhancing the scope to include “Make,””Buy” and “Make (Indian) categories, concept of “Offsets” and ship building procedure.

 

The Defence Procurement Procedure (DPP) was earlier revised and  came into effect from 1st April 2016. DPP 2016, like preivious DPPs, contains policies and procedures relating to procurement/acquisition from Capital Budget of MoD meant for modernisation of Defence Forces including Coast Guard. DPP is not applicable for DRDO and DPSUs, who have their own rules for the purpose. The  Defence Procurement Procedure (DPP) 2016, caters for implementation of Make in India Policy of the Government.

https://www.youtube.com/watch?v=MvB0YPXzXF8

DPP 2016 lays down various categories of procurement processes namely, in priority, Buy Indian – IDDM (Indigenously Designed, Developed & Manufactured), Buy Indian, Buy & Make (Indian), Buy & Make (Global) and Buy Global.In order to promote indigenous design and development of defence equipment, DPP 2016 has introduced the “Buy-IDDM”(Indigenous Designed and Manufactured) Developed category of acquisition and accorded it the top most priority.

 

DPP 2016 also provides greater impetus to the Micro, Small and Medium Enterprises(MSMEs), with certain category of ‘Make’ projects reserved exclusively for them. SMEs are searching for team mates and joint venture partners to work with that have the ability to invest, have the requisite skills and technical capabilities. They will play an increasingly important role as the amount of work increases over time.

 

“The attractiveness of the fast-growing Indian defence market, plus the increase in foreign direct investment (FDI) limit from 26 to 49 per cent and up to 100 per cent with approval for ‘modern technology or any other reason that may be recorded’, makes the policy workable for the majority of global defence primes,” said Tom Captain, Vice-Chairman, Deloitte LLP Global and US National Aerospace & Defence Sector Leader, and Alaric Diniz, Director, Deloitte Touche Tohmatsu India LLP. The global defence market is focussing on affordability, where the primes and tier I players will look for better cost efficiencies across their supply chains, which will result in movement of work to countries like India, if they are ready and able to take up the work.

 

Giving Preference to Make in India

A new category of procurement ‘Buy {Indian-IDDM (Indigenously designed, developed and manufactured)}’ has been introduced in Defence Procurement Procedure-2016 which has been accorded top most priority for procurement of capital equipment. Besides this, preference has been accorded to ‘Buy (Indian)’ and ‘Buy and Make (Indian)’ categories of capital acquisition over ‘Buy (Global)’ & ‘Buy & Make (Global)’ categories.

 

MAKE’ Category of Acquisition

The ‘Make’ Procedure has been simplified with provisions for funding of 90 % of development cost by the Government to Indian industry and reserving projects and exceeding development cost of Rs. 10 crore (Government funded) and Rs. 3 crore (Industry funded) for MSMEs.

The new DPP splits this category into three subcategories – Make I, Make II, and Make III – and incentivising local production for each category of arms manufacturers.

– ‘Make I’ will be for government-funded projects

The government will help boost the local defence production by funding 90% of the projects in the first category. It will also reimburse the remaining 10% if a project doesn’t bag a Request for Proposal (RFP), which prerequisite to issuing a contract, within two years of the local firm developing a successful prototype of the product.

– ‘Make II’ will be for industry-funded projects

Under the Make II category, the cost of development will have to be borne by the developer. However, if the RFP is not issued within two years of the successful development of the prototype, the Ministry of Defence will reimburse the full cost of development to the developer.

– ‘Make III’ will be reserved for Micro, Small and Medium Enterprises (MSMEs)

All projects whose estimated development cost is less than Rs 3 crore will fall under the third category, and projects up to Rs 10 crore will first be offered to enterprises in this category. The project will have to be self-funded by the developer.

 

 

QRs

Vendors of commercial equipment say commercial Vehicles, the ministry would specify two sets of essential parameters A and B. “Essential Parameters A” would evaluate only the automotive performance of vehicles, and only selected vehicles would be tested for “Essential Parameters B” after they are fitted on Vehicles. The vendors will make changes to existing product specifications, only on receipt of assured orders.

 

The structure of the Annual Acquisition Plan (AAP), which is a subset of the five-year Services Capital Acquisition Plan (SCAP) and the guiding document for procurement, has undergone a change to include, for the first time, a number of ‘Make’ projects that have already been given in-principle approval or are to be considered for in-principle approval by the higher procurement authorities. Besides, the existing Technology and Perspective Plan (TPCR), which has been criticised for being too vague, is now given a new life by requiring it to reflect the “details of the acquisition plans for a period of 15 years, for use by the industry.” These two developments on the planning front are likely to lead to the greater visibility of ‘Make’ projects and, more importantly, accountability on the part of the procurement authorities.

 

Introduction of L1-T1 Methodology for Award of Contracts

The new L1-T1 methodology, in essence, means that the final bidder would not necessarily be selected on the basis of lowest price quoted by the technically-compliant vendors (the so-called L1 methodology), but by a combination of price and superior technology offered by qualified vendors.

 

The Request for Proposal (RFP) will have a provision for ‘enhanced performance parameters’ wherein vendor’s additional credits will be given to a vendor based on product’s performance,/if its system displays better qualities than required, giving it an edge over pricing. Vendors meeting the enhanced parameters will be provided additional credit score while evaluating their product cost. The L‐1 bidder would no longer win a defence contract automatically, if another bidder were offering an obviously superior product at a marginally higher cost. However, the enhancement in price cannot exceed 10 percent of the cost.

 

The new methodology is intended to provide an additional incentive to equipment suppliers who would otherwise be reluctant to participate in the bidding process because their products are much superior and, therefore, expensive and uncompetitive vis-à-vis the ones fielded by rival bidders with no EPP.

 

Level Playing field

Issues related to level-playing field between Indian & foreign manufacturers, and between public sector & private sector have also been addressed. These include Exchange Rate Variation (ERV) protection for all Indian vendors, removing anomalies in customs/ excise duty etc.
• Making combat equipment available for development of prototypes.
• Equal sharing of national assets like Test Ranges, Validation Labs, EMC/EMI facilities and more on payment basis, as applicable.

 

The defence sector has a strange set of procurement procedures, which do not normally exist for other procurements. One obvious reason is that products need to be tested as unless successful testing is conducted, the costly equipment can’t be procured. So testing is a major criteria and this was, so far, not allowed to Indian private companies and was resulting into major delays, said So the new DPP opens up testing facilities, said Manohar Parricker India’s defence Minister. Various defence PSUs are also offering facilities to the private sector. The new DPP will address these concerns of the industry in detail.

 

• Industrial licensing regime for Indian manufacturers has been liberalised and most of the components/ parts/ sub-systems have been taken out from the list of defence products requiring Industrial Licence. This has reduced entry barriers for new entrants in this sector, particularly SMEs. The initial validity of Industrial Licence has been increased from 3 years to 15 years with a provision to further extend it by 3 years on a case to case basis.

 

• FDI Policy has been revised and under the revised policy, FDI upto 49% is allowed through automatic route and beyond 49% under Government approval route wherever it is likely to result in access to modern technology or for other reasons to be recorded.

 

• Offset guidelines have been made flexible by allowing change of Indian Offset Partners (IOPs) and offset components, even in signed contracts. Foreign Original Equipment Manufacturers (OEMs) are now not required to indicate the details of IOPs and products at the time of signing of contracts. ‘Services’ as an avenue of offset have been re-instated.

 

The process for export clearance has been streamlined and made transparent & online. As a result of aforesaid measures, following achievements have been made:-

• Defence Acquisition Council (DAC) accorded approval of 136 capital procurement cases at an estimated cost of Rs. 4,00,714 crore during the last two financial years (2014-15 and 2015-16) and current year 2016-17 (upto January 2017), out of which 96 cases involving Rs. 2,46,417 crore are under the ‘Buy (Indian-IDDM)’, ‘Buy (Indian)’, ‘Buy & Make (Indian)’ and ‘Make’ categories.

 

• Capital expenditure of Rs. 1,75,420 crore (approx.) was incurred on purchase of defence items for Armed Forces during the last two financial years (2014-2015 and 2015-2016 and current year 2016-2017 (upto December 2016), out of which Capital expenditure of Rs. 1,05,030 crore (approx.) was incurred on purchase from Indian vendors.

 

• The Government has issued 342 Industrial Licenses (ILs) covering 205 companies for manufacture of a wide range of defence equipment, to Indian companies, till June 2016. Out of 342 ILs, 116 ILs have been issued since the launch of Make in India initiative.

 

Defence Acquisition Procedure 2020

On September 28, 2020, the Defence Minister of India, Rajnath Singh unveiled the new Defence Acquisition Procedure (DAP)-2020 Document. The DAP 2020 came into effect from  October 1, 2020. DAP 2020 is in line with the vision of creating Aatma Nirbhar Bharat and aims to empower the domestic industry in India through the Make in India initiative.

 

Features of DAP 2020:

1-  Reservation in Categories for Indian Vendors: Several categories of Buy(Indian-IDDM), Make I, Make II, Production Agency in Design & Development, OFB/DPSU and SP model will only be reserved for the Indian Vendors who meet the criteria of Ownership and Control by resident Indian Citizens with FDI not more than 49%, providing exclusivity in participation to domestic Indian industry.

2- Enhancement of Indigenous Content: 

a. Overall Enhancement in Indigenous Content (IC): 

Category DPP 2016 DAP 2020
Buy (Indian- IDDM) Min 40% Min 50%
Buy (Indian) Min 40% Indigenous design- Min 50%
Others- Min 60%
Buy and Make (Indian) Min 50% of Make Min 50% of Make
Buy (Global Manufacture in India) Min 50% of Buy and Make
Buy (Global) Min 30% for Indian Vendors

 

b. IC Verification: A simplified and practical verification process has been outlined by the government. For this, IC will be calculated on Bas Contract Price or in other words Total Contract Price minus taxes & duties.

c. Indigenous Military Material: The use of indigenous military material will be promoted with provisions for the examination of platforms and other equipment. Also, vendors will now be rewarded for using indigenous raw material.

d. Indigenous Software: Several provisions for exploring options for operating base applications on indigenous software in Buy (Indian- IDDM) & Buy (Indian) cases have been included.

 

3. Rationalisation of Trial and Testing Procedures:   

a. The equipment will be tested based on their employability. For other purposes, appropriate certifications confirming functional effectiveness can be obtained.

b. Scope of trials will be restricted to the physical evaluation of core operational parameters. Other parameters may be evaluated based on vendor certification, certification by accredited laboratories, computer simulations of parameters.

c. Duplication of trials will be avoided. Also, the waiver will be granted based on Certificates of Conformance.

d. Requisite opportunity will be provided to the participating vendors to curb shortcomings during the Trials with permission to carry out repairs.

e. Request For Proposal (RFP) will apprise vendors to submit a draft Acceptance Test Procedure (ATP) which will be finalised by the QA agency during Technical Trials itself. The sample size for destructive tests including the aspect of cost to be borne by the seller will be stated upfront in the RFP for the vendor.

f. No repetition of inspections will be done especially during the acceptance of equipment. Third-Party Inspections will also be carried out.

4- Make and Innovation:

a. Make I- It will be funded by the government up to 70%. A cap of Rs 250 crore per is laid down. The selection is purely based on bidding criteria.

b. Make II- It will be Industry Funded for the production of indigenously designed and developed weapons/equipment/systems/platforms along with their sub-components/assemblies.

c. Make III- It will be Indigenously Manufactured for the production of equipment/platforms or spares/assemblies/sub-assemblies for enabling import substitution.

5- Design and Development: A dedicated chapter has been introduced in the DAP 2020 document for the possession of the systems designed and developed by DRDO, DPSUs and OFB.

6- Address voids: Several existing voids have been addressed in the new policy document. They are:

a. Information Communication Technology: Issues related to the procurement of ICT intensive equipment have been addressed.

b. Leasing: This is a newly introduced category substituting huge initial capital outlays.

c. Post Contact Management: Formalising the procedures after signing a contract.

d. Other Capital Procurement Procedure: A new chapter has been introduced on the procurement of essential items through Capital Budget under a simplified procedure in a time-bound manner.

6- Industry Friendly Commercial Terms: 

a. Price Variation Clause: It has been outlined for large contracts to avert inflated initial quotes by vendors and arriving at a realistic cost of the project.

b. Payments to Vendors: To ensure timely payments to the vendors, certain provisions have been introduced in the new DAP 2020 document. Payments to Indian industry have been aligned with foreign industry.

7- Offsets: Offset guidelines have been revised by the government. As per the new guidelines, the preference will be given to the manufacture of complete defence products over components and various multipliers have been added to give incentivisation in the discharge of Offsets.

 

Reforms articulated in Aatma Nirbhar Bharat Abhiyan, have been incorporated as: 

1- Notify a List of Weapons/Platforms for Ban on Import: In DAP 2020, several provisions have been made to ensure that any listed document is not procured ex import post timelines notified.

2- Indigenisation of Imported Spares:

  1.  Request for Information: This will go through the willingness of the potential foreign vendors to undertake the manufacture and set up an indigenous ecosystem at the spares/sub-component level.
  2. New Category of Buy (Global – Manufacture in India): Under this, manufacturing of either the entire/part of the equipment or spares/assemblies/sub-assemblies/Maintenance, Repair and Overhaul (MRO) facility for the equipment, through its subsidiary in India.
  3. Co-production through IGA: Co-production facilities will be set up which will not only achieve ‘Import Substitution’ but will also reduce ‘Life Cycle Cost’.
  4. FDI in Defence Manufacturing: With the new FDI policy announced, several provisions like Buy (Global – Manufacture in India), setting up of manufacturing/maintenance entities through its subsidiary in India have been incorporated to protect domestic industry in the country.
  5. Time-Bound Defence Procurement Process and Faster Decision Making: Under Aatma Nirbhar Bharat Abhiyan, several defence reforms were announced. A PMU will be established to support contract management, facilitate obtaining advisory and consultancy support in specified areas to streamline the Acquisition process. Issues addressed under these reforms are:
  1. Realistic Setting of GSQRs of Weapons/Platforms: The process of formulation of GSQRs has been refined and emphasis has been laid on identifying verifiable parameters based on analysis of ‘Comparative’ equipment available in the World and Domestic markets.
  2. Simplification of Trial Procedures: In its 2020 document, DAP laid stress on the need to conduct trials with an objective to nurture competition based on the principles of transparency, fairness and equal opportunities to all and not as a process of elimination.

3- Ease of Doing Business: This was one of the main areas to focus by laying emphasis on simplification and delegation, making the process industry-friendly with certain specific provisions incorporated. These are:

a. Procedural Changes: 

  1. To reduce time, the single-stage accord of AoN in all the cases up to Rs 500 crores has been instituted.
  2. FTP cases, post accord of AoN, will be progressed as per delegated powers thereby reducing the procurement cycle considerably.
  3. LTIPP has been re-designated as an Integrated Capability Development Plan (ICDP), covering the planning period of ten years instead of earlier 15 years.

b. Request for Proposal (RFP) and Standard Contract Document (SCD): To provide clarity and alignment of requirements, several provisions have been incorporated in the RFP and SCD. The guidelines have been issued in a flow chart having provisions of in-storage preservation and termination of contracts (where the progress is not made in the projects).

DPP-2020

The MoD has published a draft DPP-2020. The draft Defence Procurement Procedure (DPP) 2020 aims to increase indigenous manufacturing and expedite procurement of defence equipment. Unveiling the draft, Defence Minister Rajnath Singh said, “Our aim is to make India self-reliant and a global manufacturing hub. The government is constantly striving to formulate policies to empower the private industry including MSMEs in order to develop the eco-system for indigenous defence production.”The Draft Defence Procurement Procedure 2020 will increase the indigenous content for various categories of equipment by 10 per cent.

 

The draft DPP tries to bring in several new reforms in the Defence Procurement Procedures says def Secy Dr. Ajay Kumar: Some of these reforms include:

  • Software Industry: For the first time, preference has been given to the Indian software industry. Another chapter in the draft is for procurement of software and systems-related projects because in projects like these “obsolescence is very fast due to rapid changes in technology and flexibility in the procurement process is required to keep up with the technology”.
  • Fixed business for domestic companies
    Earlier there was no guarantee that domestic companies will be able to secure government contracts for supplying products. Now there is 10% quota reserved for domestic companies, which makes up a substantial amount. This is aimed at encouraging domestic manufacturers such as L&T, DRDO, HAL to invest more towards developing quality content that can match global standards.
  • Several steps to promote start-ups in defence and aerospace have been taken. Including process for procurement of technologies/solutions developed through the iDEX process by start-ups.
  • Warranty extension The defence products will have a certain warranty period during which the company will be responsible for maintaining the product with all additional costs. By introducing warranty extension policy, the government aims to increase the duration of the service period of products
  • Promotes development, certification, manufacturing and use of indigenous materials in defence and aerospace.
  • Introduces “Make-3” as a method of promoting Make in India by Indian firms taking ToT from foreign OEMs. Make 2 only allows indigenous design and development and therefore there was no opportunity for the industry to do import substitution through ToT with global partners.
  • Leasing
    The leasing category has been introduced for hiring defence products for a particular duration based on need. In current context it is not worthy to buy costly equipment which has limited usage, instead the products can be leased during need. In this way, there is no need to maintain redundant technology for a long period. Introduces. This would be relevant to non-mission critical operations and support services. The leasing model will help substitute huge initial capital outlays with periodical rental payments and will be useful for equipment like transport fleets, trainers etc that are not used in warfare. The Lessor could be Indian of a global entity, the draft said.
  • “Third Party Testing” has been introduced for the first time, thereby enabling testing to be done by agencies other than DGQA. DGAQA etc.
  • Global companies manufacturing in India
    The government has made rules that specify that global companies supplying products to India will have to manufacture certain amount of parts of their products in India. Have introduced the “Buy Global Make in India” clause, which would enable Make in India by companies from whom we are buying presently. Under new category of Buy Global-Manufacture in India, a minimum of 50 per cent indigenous content on cost basis of total contract value will be necessary. The Defence Ministry said that “only the minimum necessary will be bought from abroad while the balance quantities will be manufactured in India” and manufacturing will happen in India.
  • Price variation clause has been introduced for the first time for procurements above Rs 1000 crores and where delivery is more than or equal to 60 months to cater for the escalation of price from the last date of submission of bids till the finalisation of the negotiations. Earlier there was no such provision and each case used to be processed for approval of highest authority leading to subjectivity and delay. It will also have a ‘price variation clause’ for any project worth Rs 1,000 crore or more, with a delivery schedule of 60 months or more

 

 

 

 

 

References and Resources also include:

About Rajesh Uppal

Check Also

Artificial-Intelligence Race among Countries to strengthen economy, solve societal challenge and transform industries

Artificial intelligence (AI) term was coined by John McCarthy, defined it as “the science and …

Leave a Reply

Your email address will not be published. Required fields are marked *

error: Content is protected !!