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India mandates offsets, integrity clause in defence deals

Henceforth, all major decisions would be taken in a collegiate manner by the Defence Acquisition Council.

india Updated: Aug 30, 2006 17:30 IST
Indo-Asian News Service
Indo-Asian News Service

India on Wednesday unveiled its new defence procurement policy mandating reinvestment in the country of 30 per cent of all defence deals over Rs3 billion ($64 million) and also providing a level playing field for indigenous manufacturers vis-à-vis their foreign counterparts.

Apart from the 'offset' clause, the Defence Procurement Procedure (DPP) 2006 unveiled in New Delhi by Defence Minister Pranab Mukherjee also provides for a pre-contract 'integrity pact' in all deals worth over Rs1 billion.

Henceforth, all major decisions would be taken simultaneously in a collegiate manner by the Defence Acquisition Council, even as there would be increased transparency in the conduct of field trials, the policy says.

This apart, the generic requirements of the three services would be placed on the defence ministry's website to enable vendors register themselves on the internet.

Noting that DPP 2006 was a refinement of DPP 2005, Mukherjee said the exercise had developed as a result of the reforms he had initiated when assuming office two years ago to ensure greater transparency and probity in defence deals.

"It has been our consistent effort that all delays in the modernisation of the armed forces are eliminated and funds marked for modernisation are spent fully and on time," Mukherjee maintained.

"The successive revisions of Defence Procurement Procedures have been an important means for achieving this objective. In the last two years, the utilisation of allocations in the defence budget has been consistently around 99 per cent," he added.

The minister pointed out that while DPP 2005 covered the 'Buy' and 'Buy and Make' areas, one area that had not been addressed was the procedure for acquiring defence equipment based on indigenous research and design. This lacuna has been addressed in DPP 2006 that includes a separate procedure for the 'Make' category.

"The 'Make' procedure has been designed to enable Indian industries develop high technology complex systems and undertake upgrades required by the armed forces, considering that such technology is well guarded and not freely available," Mukherjee added.

Under this, a minimum of two production agencies would be shortlisted to undertake the design and development of a prototype of a system or equipment. The prototype would then be subjected to technical and field trials to assess the overall performance of the systems.

If both developing agencies successfully develop the prototype, the contract would be awarded to the lowest bidder.

A revamped fast track procedure for acquiring defence equipment required on an urgent basis has also been included in DPP 2006.

"While the defence acquisition process is long, deliberate and arduous, it is recognised that urgent operational requirements do arise. The revised fast track procedure has adopted a 'top down' approach in which all decisions are taken in a collegiate manner by the Defence Acquisition Council," the minister noted.

The procedure for indigenous warship building has also been revised "with the objective of integrating systems acquired from different sources with indigenous systems on the same platform", Mukherjee stated.

"The primary objective is to ensure that futuristic weapons and sensors are deployed while minimising time and cost overruns in the indigenous construction of naval ships."

Detailing how the 'offsets' policy would work, a defence ministry spokesperson said this could be through:

* Direct purchase of, or executing export orders for, defence products and components manufactured by, or services provided by, Indian defence industries,

* Direct foreign investment in Indian defence industries,

* Direct foreign investment in Indian organisations engaged in defence research and development.

A Defence Offset Facilitation Agency (DOFA) has been set up under the department of defence production to facilitate the implementation of the policy.

DOFA will assist potential vendors in interfacing with Indian defence industry for identifying potential offset products/projects as well as provide requisite data and information for this purpose, the spokesperson added.

First Published: Aug 30, 2006 17:30 IST