Government revises defence procurement procedures

The government today promulgated a new defence procurement policy that aims at expediting procurement of defence equipment and building up a robust indigenous defence sector while ensuring transparency, probity and public accountability.

The `Defence Procurement Procedure 2013', which takes effect from today, lays a strong emphasis on promoting indigenisation and creating a level playing field for the Indian industry in the defence sector.

The new procurement policy explicitly accords higher preference to domestic manufacturers (Buy Indian). In case no local suppliers are available, the next preference would be given to localisation of foreign equipment.

The policy also clearly defines the 'indigenous content' while simplifying the indeginisation process. The requirement of the prescribed 30 per cent indigenous content in the `Buy Indian' category is to be achieved on the overall cost basis, as well as in the core components, ie, basic equipment, manufacturer recommended spares, special tools and test equipments taken together.

In addition, the basic equipment must also have minimum 30 per cent indigenous content at all stages, including the one offered at the trial stage. It has been further stipulated that an indigenisation plan will be provided by the vendor. These stipulations are expected to ensure more meaningful efforts towards indigenisation.

While the policy stipulates a penalty for not achieving the required indigenous content at a given stage, it also provides for making up the deficiency at later stages.

Likewise, in the `Buy and Make Indian' cases, there is no stipulation regarding the minimum indigenous content and the Indian vendor gets enough elbowroom to achieve the prescribed indigenous content in the overall delivery. This Indian vendor will also get enough time to absorb transfer of technology and set up manufacturing facility while concurrently meeting the service requirements.

The policy also offers a method for assessment of indigenous content based on self certification by vendors while keeping provision for audit by the defence ministry or its nominated agency, if found necessary.

Besides, the validity of the `Acceptance of Necessity' (AoN) has been reduced from two years to one year with a stipulation to freeze the service qualitative requirements (SQRs) before the accord of the AoN. This will bring down the processing time of individual cases significantly.

The simplification of the `Buy and Make Indian' procedure and the extended validity of AoN are expected to bring more projects under the `Buy and Make Indian' category.

The new policy delegates higher financial powers to the service headquarters and the defence procurement board (DPB). Together, these measures are expected to make the procurement procedure more efficient while helping to reduce delays.

The enhanced delegation of powers of the service headquarters from Rs50 crore to Rs150 crore and the power of the DPB from Rs150 crore to Rs300 crore is expected to speed up defence procurement.

Under the `Buy Global' cases, it will now be possible for the Indian vendor to give maintenance contract of technology transfer to another Indian vendor of their choice. The partner maintaining technology transfer is no longer required to be nominated by the DDP.

The payment terms and commercial offer have been recast as 'commercial clauses' and 'evaluation criteria of price bid format', thereby bringing payment terms for Indian bidders on par with those for the foreign bidders, specificity in stages and modes of payment and removal of excise duty.

Other significant changes include incorporation of the new offset policy guidelines, which were promulgated in August 2012, and revision of the chapter on shipbuilding, which had been introduced in the DPP 2011. The ministry has also further simplified the `make' procedures and revision of the `fast track' procedures, which is likely to be completed in the near future.

With these changes, the new procedure is expected to provide the much-needed thrust to the Indian defence industry in the years to come while continuing to meet the defence requirements of the country at an even pace.