Revised Defense Procurement norms: Are they Satisfactory?

In order to give boost to the ‘Make in India’ campaign in the defense sector, the Defense Acquisition Council (DAC) has come up with a revised Defense Procurement Procedure (DPP) 2016. As per the government opinion, this will help in increasing the procurement from the domestic suppliers and will provide an impetus to manufacturing within India which will help in creating more jobs opportunities for people. But the industry professional do not seem to be satisfied with the new plans.

The Defense Acquisition Council, headed by Defense Minister Manohar Parrikar, has introduced a new category of acquisition named Buy Indian or IDDM (Indigenous Design Development and Manufacturing) with two sub-categories in order to localize the defense equipment production. At present, there is a huge dependence on the foreign military vendors as the manufacturing sector is still in its infancy in India. The military research is highly limited and we are majorly limited to assembling the foreign kits. Seeing the present manufacturing landscape, the government has come up with measures to address these issues. Under IDDM, first subcategory deals with mandating 40 percent domestic content for domestic designed equipment and the second one mandates 60 percent domestic content for foreign designed equipment. 

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The new DPP also improves the offset threshold (with compulsory procurement of 30 percent contracts from India) from present Rs.300 crore to Rs.2000 crore to provide greater flexibility to foreign contracts. In order to boost military Research and Development, the Department of Defense Production has proposed to provide 90 percent of funding to private R&D projects, out of which 20 percent will be given in advance and tenders will be issued in 24 months. Also, there is a lot of effort going on to push the Micro, Small and Medium Enterprises (MSME) towards technology development. The government has set apart Rs.10 crore of funding towards MSME for design and development to generate a new wave of domestic innovation. This will help in increasing the participation from private sector.

Domestic Indigenization is one of the key steps for any country to become a developed economy. It is high time that the government put the right foot forward in actualizing this process. The industry professionals seem troubled with the proposed solution. According to them, the present move presents itself as an incomplete solution. The defense manufacturing is already dominated by the public sectors whereas the private sector is way behind in this respect. There is a need of involving the private sector in more military R&D and production as this will help in making the ‘Make in India’ dream a reality. Since India has been over-dependent on foreign procurement for so long, there are already so many advantages that they enjoy over the Indian vendors. 

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It is easy for foreign vendors to obtain payments for their project as they can self-certify their project progress whereas their Indian counterparts have to wait for the government inspector’s certification. The former enjoys customs duty exemption whereas the latter has to wait for months to get the reimbursement of the excise duty exemption. It’s time that the government shifts the focus towards the local vendors and provides them the privileges which the foreign vendors have enjoyed till now. It’s important that the estimated Rs.100 crore funds that the government has allocated for the next decade for military equipment should reach the domestic market if it wishes to change the manufacturing landscape. All these measures, if undertaken, will help in reducing the over dependence of India on defense equipment import from the foreign land, which at present stands at 65 percent of the total defense procurement.
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About the Author: Arshdeep Kaur is an Electronics and Communication Engineer who is working in one of the leading MNCs in Bangalore. Born and brought up in Delhi, she is exploring her interests in the areas of writing