The Union government approved on Monday new rules for procuring defence equipment that pave the way for higher spending, in a stark departure from present protocol which dictates that the lower bidder be selected for weapons and systems supply.
The Defence Procurement Procedure-2016, to be notified within two months, will also not require foreign vendors to invest in the indigenous defence sector for contracts worth less than Rs 2,000 crore, up from the existing ceiling of Rs 300 crore. The move could hit smaller businesses in the country.
Shortly after the defence acquisition council approved the new DPP on Monday, defence minister Manohar Parrikar told reporters that changes in the L1 (lowest bidder) policy would be allowed in specific cases if the weapons came with additional capabilities over the stated requirements of the military.
He said additional weightage would be given to the vendors under the “enhanced performance parameters” to be part of global tenders issued by the defence ministry.
Parrikar explained, “If an air defence gun can fire 1,000 rounds, I will prefer the one that can fire 1,200 rounds. Though my requirement may be met by the previous gun, but certain additional points will be given to the superior gun.”
He said India will be willing to pay 10% more for the better equipment. Calling it an enabling provision, Parrikar said the move would benefit the country as if a particular firm was unable to secure the 10% advantage, it could quote a lower price to stay competitive.
Parrikar said the existing offset policy of foreign vendors being required to invest 30% of the value of all contracts worth `300 crore was being revised as the country did not have the capacity. He also said that the cost of equipment went up by 17% due to the offset clause.
“Offset deals worth $5 billion have already been signed and deals worth up to $12 billion are in the pipeline. Absorbing that will take at least 15-20 years,” he said. The minister said a decision on the government’s blacklisting policy and appointing arms agents would be taken separately.
Parrikar said the new policy had provisions to speed up defence procurements by discarding some provisions that led to duplication of efforts. He said Make in India would be the cornerstone of the new policy and a new category of India-designed, developed and manufactured (IDDM) products for defence purchases had been introduced where 40% indigenous content had to be locally developed.
The defence minister also said that the government would necessitate a pre-audit for strategic partnerships forged by foreign firms with Indian companies to produce defence equipment like fighters, choppers and warships. However, the policy for strategic partners will be announced later.
The new procurement policy will also not require foreign vendors to invest in indigenous defence sector for contracts worth less than Rs 2,000 crore, up from the existing ceiling of Rs 300 crore. The move could hit smaller businesses in the country.
The exception to the lowest bidder rule will be allowed only in cases where the additional funds – up to 10% -- is to be shelled out for a better-spec weapon or system.
The minister said a decision on the government’s blacklisting policy and appointing arms agents would be taken separately