The most important takeaway of the new Defence Procurement Policy is the increase in the offset baseline from Rs. 300 crore to Rs. 2,000 crore, besides the focus on reducing delays in procurements

With the Defence Acquisition Council (DAC) clearing new clauses to the proposed Defence Procurement Policy (DPP) on January 12, Defence Minister Manohar Parrikar has stressed the new DPP will ensure that the modernisation of defence forces remains unaffected due to procedural intricacies.

While the most important takeaway of the new DPP is increase in the offset baseline from Rs. 300 crore to Rs. 2,000 crore, the DPP focuses on: reducing delays in procurements by eliminating repetitive procedures; new clauses allowing procurements in through single vendor with proper justification; government readiness to pay 10 per cent extra for products better than others; new category of Indigenously Designed Developed and Manufactured (IDDM) as the most preferred category for procurements, and; the three services to each have dedicated ‘Project Management Units’ headed by two-star general rank officers driving all ‘Make’ projects relating to respective service.

‘Make’ procedure will be divided in three sub-categories. Make I will involve 90 per cent funding of development cost by government; in Make II government will refund 100 per cent development cost in case the request for proposal (RFP) is not issued within two years of development of prototype; and Make III reserved for small and medium scale enterprises for projects worth less than Rs. 3 crore. The DAC’s decision will need ratification from the Cabinet Committee on Security (CCS).

DPP 2016 will also be laying down benchmarks for selection of private strategic partners from among Indian or foreign firms. In future, vendors offering IDDM products will be preferred to vendors offering equipment designed abroad. This is a big change since focus so far was on licensed manufacture rather than higher-tech realm of designing and developing Indian weaponry. The current procurement policy (DPP 2013) only promotes manufacture in India. It gives top priority to the ‘Buy (Indian)’ category; followed by ‘Buy and Make (Indian)’ and ‘Make’ categories, which mandate high levels of indigenisation. Lower priority was given to ‘Buy (Global)’ and ‘Buy and Make’ categories, which allow a greater role to foreign production. The new DPP will explicitly boost Indian design and development. As per the Ministry of Defence (MoD), “This category will be the most preferred acquisition category, above the existing ‘Buy (Indian)’ category”.

Besides being designed and developed in India, at least 40 percent of a product must be manufactured in India for it to qualify for the IDDM category. In addition to indigenously designed kit, equipment containing 60 per cent or more of indigenous content will also make it to the highest procurement priority. The domestic companies eligible under this will have majority Indian control and operated by Indian nationals. In addition to building a technology base in the country, the government through the Department of Defence Production will fund private R&D for which various norms have been stipulated, as mentioned above.

Implementation of DPP 2016 will take another two months or so. The new category of IDDM undoubtedly is ingenious and can be a game changer catapulting India into the take-off destination for cutting-edge innovation with far-reaching effects. It also implies that India’s defence exports could soar exponentially. But as they say, the proof of the pudding lies in its eating. So, the private industry while welcoming announcements made so far, would like to wait and see the manner in which this is implemented since any loopholes could be used to the disadvantage of some, rather than ensuring a level playing field. For example, private industry innovators wonder how accurately it would be possible to ascertain where a particular product has been designed; whether designed indigenously or abroad. Depending on the scale of the project and the money involved, a product could be claimed as designed in India, which may not be the case. Besides, if a product is designed in multiple countries including India how will such situation be tackled? Unless all such issues are addressed, it could lead to a cycle of corruption, allegations and counter allegations.

The bottom line is that DPP 2016 sure is imaginative and with far-reaching changes, including first-time emphasis on IDDM to boost the ‘Make’ programme in which the government subsidises equipment development and provides encouragement to small-scale industry. At the same time, it must be realised that considering the present state of our R&D, the time required to reach the category of IDDM, production and fielding of weapons and military products into our armed forces will take considerable number of years, especially when our needs cover the entire range not just random products like helicopters, aircraft, ships, etc. We would be making a grave error in ignoring this fact especially considering the threats that are mounting around us. So it is not only the speedy implementation of DPP 2016 in the right spirit but also addressing critical voids of the armed forces in the interim period. Above all, if there is no national security strategy enunciated with no national security objectives defined despite the fast changing dynamics of geopolitics. Does MoD expect the armed forces to continue working out their long-term requirements in thin air?

The views expressed herein are the personal views of the author.