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New Defence Procurement Procedure 2016
Apr 15, 2016

The new Defence Procurement Procedure (DPP–2016) becomes operational from April 2, 2016. The government’s push for 'Make in India' is clearly stamped on the new policy. As part of the implementation of the report of the Group of Ministers on reforming the National Security System, new Defence Procurement Management Structures and Systems were set up in 2001. As a fall-out, the Defence Procurement Procedure-2002 (DPP-2002) came into effect from December 30, 2002. The DPP has since been revised in 2005, 2006, 2008, 2009, 2011 and 2013, enhancing the scope to include ‘Make,’ ‘Buy and Make (Indian)’ categories, concept of ‘Offsets’ and ship building procedure.

Salient Features

  • Acquisition schemes are broadly classified as, ‘Buy’, ‘Buy and Make’, and ‘Make’. ‘Buy’ is further categorised as ‘Buy (Indian indigenously designed, developed and manufactured—IDDM)’, ‘Buy (Indian)’, and ‘Buy (Global)’.

  • ‘Buy & Make’ essentially is initial procurement of equipment in Fully Formed (FF) state followed by indigenous production through Transfer of Technology (ToT).

  • Buy Indian or IDDM must have at least 40% indigenous content. 'Make' portion of the contract has to be minimum 50%.

  • ‘Buy (Global)’ is outright purchase of equipment from foreign vendors and the Government to Government route may be adopted. Ministry of Defence will spell out 15 years Long Term Integrated Perspective Plan (LTIPP), the 5 years Services Capital Acquisition Plan (SCAP) and Annual Acquisition Plan (AAP) for clarity.

  • Appointment of ‘strategic partners’ for manufacturing equipment like aircraft, warships, helicopters, submarines, tanks, etc., based on technology from foreign vendors will be a priority.

  • The IDDM would encourage defence industry to shift from licensed manufacture into the high-tech realm of designing and developing defence equipment.

  • The 'Make' procedure will see the government reimbursing 90% of the development cost.

  • There is also greater assurance for defence industry to recover its costs.

  • After successfully developing a prototype, if the vendor does not get an order, even his 10% expenditure would be refunded. DPP-2016 liberalises the ‘fast track’ procurement of urgently needed equipment.

  • DPP-2016 creates path-breaking steps for merit-driven acquisitions and will help global manufacturers and Indian companies to forge partnership.

  • The most important takeaway is the increase in the offset baseline from Rs 300 crore to Rs 2,000 crore. However, even beyond that, the policy promises to make the defence market more lucrative for Indian industry.

DPP-2016 refines ‘Make’ procedure to ensure increased participation of the Indian industry, especially MSMEs. Defence procurement involves long gestation periods. Delays in procurement impact defence preparedness and entail cost escalation. The DPP encourages quicker decision making and delegates powers to the appropriate authorities. DPP will provide public accountability and ensure level-playing field while keeping self-reliance as a key aim.

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. Interestingly, 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 will benefit.

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.

Self-reliance is a major cornerstone on which the military capability of any nation rests, so it caters to the need to leverage the indigenous manpower and engineering capability. It is proposed to utilise and consolidate design and manufacturing infrastructure within the country.


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