India’s new defence procurement rules, aimed at cutting dependence on imported weapons and boosting indigenous manufacturing, will apply to all new acquisitions from Saturday.
The core of the Defence Procurement Procedure (DPP)-2016 is the government’s Make in India plan which will tap the country’s manpower pool and engineering capability while also helping local industries design, develop and manufacture military hardware.
Defence minister Manohar Parrikar unveiled the new mandate at a military systems’ exhibition in Goa on March 28, which was attended by 1,055 Indian and foreign firms.
The procurement procedure introduces a new category of Indigenously Designed, Developed and Manufactured (IDDM) products that will be given the highest priority while making defence purchases.
‘Buy Indian-IDDM,’ the most favourable mode of buying military items of five categories listed in the DPP, prefers acquisition from an Indian vendor, provided one of two conditions are met.
If a product is manufactured, designed and developed locally, it should have a minimum of 40% indigenous content (IC) of the total contract value. But if it is not a local product, it should have 60% IC on the cost basis of the contract value.
The DPP stated procedures had been refined to ensure increased participation of the Indian industry. It will likely be reviewed after six months.
“Self-reliance is a major corner-stone on which the military capability of any nation must rest,” the DPP read.
The new norms also aim at enhancing the role of micro, small and medium enterprises in the defence sector.
The least priority will be given to the Buy (Global) category that governs outright purchase of equipment from foreign vendors.
The defence ministry is giving finishing touches to a policy on “strategic partners and partnerships” to allow Indian and foreign firms to collaborate on building warplanes, advanced submarines and helicopters. Though mentioned in the DPP, it will be brought out as a separate document.
India will also be spending as much as 10% higher than usual for procuring better defence equipment under the new rules.
Additional weightage will be given to vendors selling equipment with “enhanced performance parameters (EPP)”, a stark departure from the present protocol that picks the lowest bidder (L-1).
“Equipment successfully meeting the EPP parameters will be awarded a credit score of up to 10%, for evaluation of L1,” the DPP stated.
However, inability to meet the EPP does will not disqualify one from bidding for a contract.
“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, certain additional points will be given to the superior gun,” Parrikar said on January 11 when the new rules were approved.
The move is likely to benefit the country because if a particular firm is unable to secure the 10% advantage, it could quote a lower price to stay competitive.
The DPP will however 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. This could hit smaller businesses in the country.
Parrikar had earlier said the existing offset policy of foreign vendors being required to invest 30% of the value of all contracts worth Rs 300 crore was being revised as the country did not have the capacity to absorb the investment. Cost of equipment had gone up by 17% due to the offset clause.
The new DPP, however, does not cover the government’s blacklisting policy and appointing arms agents and will be dealt with in a separate document.