New defence procurement procedure changes dynamics

Ajay Banerjee 

Tribune News Service

New Delhi, January 11

Months after the Narendra Modi-led government promised a new procedure for defence equipment acquisition, the Ministry of Defence today okayed major policy changes that will give top-priority to locally produced equipment and fund Indian private companies to do research and development.

It, however, deferred addressing key twin issues: One, having a method on blacklisting, or not blacklisting, of firms indulging in wrongdoing and two, on having guidelines to select international strategic partners for producing major equipment in India.

The Defence Acquisition Council (DAC), the apex decision making body of the MoD, took the decisions at a meeting chaired by Defence Minister Manohar Parrikar here this evening.

The DAC, at a three-hour meeting, allowed changes to the Defence Procurement Procedure (DPP)-2013 following the yearlong review. A committee of experts headed by former Union home secretary Dhirendra Singh suggested changes to DPP.

Under the changes allowed by the DAC today, the DPP will have a new category called the ‘IDDM’ or ‘Indigenously Designed, Developed and Manufactured’ platforms. This will get top priority and will be first to be chosen for tenders.

This will have two sub-categories — one, it will be mandatory to have 40 per cent local content in case the design is also indigenous. Two, in case the design is not Indian, 60 per cent local content will be mandatory.

The definition to be counted as an ‘Indian company’ is a company that is controlled and operated by Indian nationals. “This way the Intellectual Property Rights remain within the country,” a source said.

Notably, the DPP allows certain leverage to foreign companies. It raises the limit of ‘off-sets’ from Rs 300 crore to Rs 2,000 crore. ‘Off-sets’ are a provision that makes foreign companies to mandatorily procure 30 per cent of the supplies from Indian partners, in case of winning a bid of Rs 300 crore or more. This limit has been raised to Rs 2,000 crore, as not many Indian companies are available to absorb so much of technology infusion.

Another major change in the DPP is the policy to fund Indian private entities in Research and Development to encourage more local development. Parrikar today said, “The Medium and Small-Scale industries will get opportunities.”

The Department of Defence Production will fund up to 90 per cent of the R&D, of which 20 per cent will be given in advance and in 24 months the entity will be given tender. If the tender is not given, the private company will get a refund of its expenses.

Another one will be funding of Rs 10 crore for R&D to medium-scale industry. On blacklisting, the Dhirendra Singh committee suggested to disallow any ban against any equipment for misdeeds of company employees.

The DPP sets up an empowered committee to solve disputes or unforeseen issues. Till now disputes went to DAC.

Each of the three Services will have a Major General-rank officer for project management to be run on road map in line with the long-term perspective plan.

Given the limited choices in defence equipment technology production, the DPP says bids can be accepted even if there is only one supplier.

Globally, India is the largest buyer of weapons and military equipment, accounting for some 15 per cent of all such international imports, said a report by Sweden-based think-tank Stockholm International Peace Research Institute (SIPRI) in March last year.