Defence procurement policy tweaked to encourage Indian industry

The Defence Acquisition Council (DAC), the apex decision making body of the defence ministry, has taken a series of decisions, including amendments to defence procurement procedure (DPP), so as to provide a level playing field for domestic companies in defence production.

The decision, taken at a meeting of the DPC chaired by defence minister A K Antony, aims at infusing greater efficiency in the procurement process and strengthening the defence manufacturing base in the country.

''The only way forward for the country is rapid indigenisation of defence products, with both the public and the private sectors playing  pivotal roles in this endeavour,'' Antony said, adding that the government would make all efforts to create a genuine level playing field for Indian manufacturing industries vis-à-vis global players.

The amended defence procurement policy incorporates the DPP-2011, which gives preference for indigenous procurement, through an amendment that provides for a preferred order of categorisation, with global cases being a choice of last resort.

The order of preference, in decreasing order, will henceforth be: `buy Indian', `buy and then manufacture indigenously', `manufacture within the country', `buy and manufacture with transfer of technology' and `buy globally'.

Any proposal to select a particular category must now state reasons for excluding the higher preferred category/ categories.

The DAC also approved the release of a public version of its long-term (2012-27) indigenisation perspective plan (LTIPP) document, outlining the `technology perspective and capability roadmap' (TPCR) against the 15-year LTIPP 2012-2027.

The TPCR aims at providing guidance to the Indian defence industry for boosting its infrastructural capabilities and directing its R&D and technology investments.

Technology transfer norms eased
Whereas maintenance of technology transfer has hitherto been reserved largely for firms coming under the ordnance factory board and defence public sector undertakings through the nomination process, a DPP amendment does away with nomination by the department of defence production and facilitates selection of technology partners by Indian bidders.

This measure is expected to have a positive impact on private sector participation in maintenance, repairs and overhaul work, an official release said today.

The DAC has approved an amendment mandating consultations to begin sufficiently in advance of actual procurement by service headquarters (SHQs), so that capital acquisition plans can be translated into national defence R&D and production plans.

In addition, a high-level committee has also been constituted for simplification of `make' procedures, with a view to unleash the full potential of this important category.

The DAC has approved an amendment, further simplifying the complex `buy and make' category. Its procedures have been brought on par with other categorisations, resulting in faster processing of cases under this category.

Increased indigenisation will ensure reliable supply chain for the armed forces, the release said.

Indigenous content has also been defined in an unambiguous manner, providing requisite clarity and a common understanding.

The defence ministry has plans to acquire defence equipment of an estimated value of Rs1,20,000 crore under the `make' and `buy and make Indian' category and the ministry has issued instructions for speedier conclusion of these cases.

The defence ministry has categorically said that dual-use items will not require licensing, in order to bring added clarity to the licensing process.

The defence ministry has already circulated draft security guidelines that will apply to all licensed defence industries for consultations with various stakeholders. A complete security framework for Indian private industries participating in defence cases is expected to be in place in the near future.

Tax-related Issues
The defence ministry also said it has taken up with the finance ministry the issue of deemed exports status for certain defence projects and rationalisation of tax and duty structures impinging on the Indian defence industry.

Funds for defence MSMEs
The DPP-2011 requires the setting up of a fund to provide necessary resources for development of defence equipment. In order to ensure regular supply of funds to MSMEs involved in manufacturing of defence products, SIDBI has decided to earmark Rs500 crore for providing loans, and further, a fund of Rs50 crore for equity support out of `India Opportunities Fund' managed by its subsidiary, namely, SIDBI Venture Capital Ltd.

Efficiency and transparency
In order to expedite the acquisition process and increase transparency, the policy stipulates freezing of the SQRs before the `acceptance of necessity' (AoN) stage and reducing AoN validity from two years to one year.

The financial powers of service chiefs/ DG Coast Guard have also been enhanced from Rs50 crore to Rs150 crore for capital acquisition cases.

Approval for all deviations from the DPP will henceforth be sought from the defence acquisition council instead of the defence minister.