Defence Minister Manohar Parrikar announced the contours of the long-awaited new defence procurement procedure (DPP), which he had promised immediately after taking over as defence minister in November 2014. It will take another two months for the DPP to be notified, which will include all the annexures and appendices containing the details of the procedure. A crucial chapter, pertaining to selection of strategic partners in defence manufacturing, has not been finalised yet — the V.K. Aatre Committee, formed to recommend policy on this aspect, is expected to submit its report this week. The policy — critical for the business development plans of India’s top private defence manufacturers — will then be finalised after discussion at the defence ministry. The delay in its finalisation renders the current exercise incomplete in its ambit and scope.
In finalising the current DPP, the defence ministry has accepted 90 per cent of the recommendations made by the expert committee headed by the former home secretary, Dhirendra Singh. The two major highlights of the new DPP are the creation of a new category called the “IDDM” or indigenously designed, developed and manufactured platforms, and the raising of the value of contracts for 30 per cent offsets from Rs 300 crore to Rs 2,000 crore. The IDDM category will get top priority while buying equipment and will be the first to be chosen for tenders. This is likely to incentivise indigenous design and production of defence equipment under Make in India. Read in consonance with the reimbursement of development funding up to 90 per cent of the cost, this will further encourage Indian private companies to do research and development. The issue of 30 per cent offsets, which are to be spent in India, by all foreign suppliers, has been a major grouse among Western suppliers. By raising the value of contracts for offsets to Rs 2,000 crore, the defence ministry has satisfied the foreign companies in all future contracts.
The defence minister was also expected to issue the policy on blacklisting of defence suppliers and authorised defence agents along with the DPP but those still await the light of day. Those policies are critical to creating a well-defined landscape for the operation of both Indian and foreign defence manufacturers. The earlier they are issued, the better. Good-intentioned, with a clear focus on the indigenisation of defence production, the test of the new DPP will be in its early finalisation and notification — and eventually, its execution.