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New Defence Procurement Norms
Jan 14, 2016

The Defence Acquisition Council (DAC) cleared new clauses to the proposed Defence Procurement Policy (DPP). The policy will include imaginative and far-reaching changes, including a first-time emphasis on indigenous design, reduction of export content in weaponry, a boost to the ‘Make’ programme in which the government subsidises equipment development and encouragement to small-scale industry.

  • The most important takeaway is the increase in the offset baseline from Rs 300 crore to Rs 2,000 crore.

  • Even beyond that, the policy promises to make the defence market more lucrative for Indian industry.

  • The new policy will ensure the modernisation of defence forces remains unaffected — least due to procedural intricacies. 

  • The new DPP has stressed reducing delays in procurements by eliminating repetitive procedures.

  • It has also introduced certain clauses which allow procurements in case of single vendor situations with ‘proper justifications’. 

  • The government is also ready to pay up to 10 per cent extra for those products which are better than others. This will ensure that the armed forces—the end users—will benefit.

  • The DPP will also have a new category of Indigenously Designed Developed and Manufactured (IDMM) as the most preferred category for procurements. 

The three sub procedures under the ‘Make’ category aim to boost domestic private and small scale industry.

1. In Make I, the government will fund 90 per cent of the development cost, instead of just 80 per cent. Further, if after successfully developing a prototype, the vendor does not get an order within 24 months, his 10 per cent expenditure would be refunded. This indirectly addresses an oft-expressed concern of the defence industry: the high cost of capital, which effectively raised its 20 per cent share to 40-45 per cent by the time the government reimbursed its expenditure.

2. Make II,
involves industry funding, rather than government funding, for prototype development. If a tender is not issued within two years of the successful prototype development, the defence ministry would refund the entire development cost to the duly selected vendor.

3. Make III, seeks to galvanise innovation in micro, small and medium enterprises (MSMEs). While procedurally similar to Make II (industry-funded Make), this is reserved for projects with a development cost of less than Rs 3 crore, which will be exclusively reserved for MSMEs.

While the changes proposed will be implemented only after about two months, the practicalities/shortcomings of the new DPP will be visible only once it is implemented and contracts are executed under these guidelines. 

The new category of Buy Indigenously Designed, Developed and Manufactured Equipment is ingenious. This changes everything. The impact will be far-reaching and will have cascading effect. This will change India from being a destination for low-cost manufacturing, to being a starting place for cutting-edge innovation; from being a consumer of outdated equipment to being a producer of trail-blazing technology; from being the world’s largest importer to being a leader in export of defence equipment.


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