New defence procurement policy provides 90% finance in some cases

The government will finance 90 per cent of the cost of producing defence equipment by the private sector under a new sub-category introduced on Monday.

The Defence Procurement Procedure 2016 (DPP-2016) unveiled at Defexpo 2016 in Goa splits the existing ''Make'' category of projects into Make I and Make II, the first to be mostly funded by the government and the latter by private industry.

''Projects under Make I sub-category will involve government funding of 90 per cent, released in a phased manner, and based on the progress of the scheme, as per terms agreed between ministry of defence and the vendor,'' the new DPP document said.

Make II projects would be funded by industry. ''Projects under Make II category will involve prototype development of equipment or system or platform or their upgrades, or their sub-systems or sub-assembly or assemblies or components with a focus on import substitution, for which no government funding will be provided for prototype development purposes,'' the document said.

The Make in India initiative launched by Prime Minister Narendra Modi in September 2014 aims to promote the manufacturing sector, and increase the contribution of manufacturing output to 25 per cent of the gross domestic product. The defence sector is prominent among the 25 sectors of industry covered under the initiative.

The provision of Make category of capital acquisition is a key pillar for realizing the vision behind the Make in India initiative.  Therefore, the new DPP 2016 released on Monday was structured to provide the necessary leverage to make adequate investments, build the required capabilities, and match up to the contemporary and futuristic requirements of the Indian armed forces.

 ''DPP is not going to be the game changer. The mindset is going to be the game changer,'' defence minister Manohar Parrikar said in an interview to Mint.

The minister said Indian companies have started believing in defence production.

''The government is proactive in promoting Make in India. Startup India can be a big contributor in the defence sector,'' Parrikar said. ''With the new DPP, we have ensured that transparency is greater and clearances are faster,'' he said, inviting the industry to participate in the sector in a big way.

''This Defence Expo (Defexpo 2016) will display to the world what India can do. The participation at Defence Expo has been beyond our expectations,'' he added.