Explained: New in new defence procurement procedure

The draft has been circulated with the industry and Services, the Ministry has appointed a 10-member committee to examine the policy.

Written by Pranav Kulkarni | Published:June 2, 2015 12:34 am
Manohar Parrikar, Defence Ministry, DPP, india defence deals, Defence Procurement Procedure, Make in India campaign, Rafale deal, parrikar Rafale deal, india france Rafale, narendra modi govt, Indian express Rafale will be an early acquisition.

The Defence Ministry is set to revise the Defence Procurement Procedures (DPP). The draft has been circulated with the industry and Services, the Ministry has appointed a 10-member committee to examine the policy, and set a deadline for recommendations.

DPP was drafted in 1992, comprehensively reviewed in 2002, and revised in 2003, 2005, 2006, 2008, 2011 and 2013. The latest revision is expected to be different — Defence Ministry wants it to simpler, and in tune with ‘Make in India’. A role for agents — banned now — and a revision of the blacklisting policy are among the expected changes.

Procurement Procedure

The DPP is the master manual of capital defence procurements in India. The latest version, the 351-page DPP 2013, categorises defence acquisitions into four sub-categories: ‘Buy Indian/Global’, meaning outright purchase from Indian/foreign manufacturers; ‘Buy and Make’ and ‘Buy and Make (Indian)’, meaning buying from foreign/Indian vendor followed by Transfer of Technology and production in India; and ‘Make (Indian)’, meaning development of the product in India from scratch. DPP 2013 for the first time listed buying from within the country as priority.

Offsets

The DPP mandates that for any contract above Rs 300 crore in the ‘Buy’ and ‘Buy and Make’ categories, offsets corresponding to 30 per cent of the value of the contract are compulsory. Which means the vendor has to invest 30 per cent (of the cost of the contract) in Indian industry so as to have indigenous content in the product. This has not yielded great results over the past decade, given that the Indian defence industry is still in a nascent state and has been unable to absorb state-of-the-art technology that defence offsets require. Foreign vendors have been discharging offsets that do not build the capability of Indian industry, thus killing their very objective. The offset policy is under revision; the government is of the view that they should be measured as percentage of technology gained, instead of in terms of money.

Make in India

The DPP currently does not fit the ‘Make in India’ idea. No clause facilitates this in terms that the government has been advocating, even though it does give preference to buying Indian products over global. ‘Make’ has not helped — the first project under it was awarded only for the development of Battlefield Management System (BMS) for the Army. The new DPP promises to create simple guidelines to ensure ‘Make in India’ in defence manufacturing.

Middlemen

Agents/representatives/consultants/middlemen are not allowed in the existing DPP. This is slated to change. Defence Minister Manohar Parrikar has articulated a place for “representatives” in defence procurement, and a legal framework for this is likely.

Blacklisting

Blacklisting became a trend under the previous regime — six companies were blacklisted in 2012 in light of the OFB scam, severely hitting the artillery modernisation programme. Officials say in case one subsidiary indulges in wrongdoings, other subsidiaries may still be allowed to do business.

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