Defence Procurement Policy(DPP): 2016

•  Defence procurement policy is unveiled by the government with an aim to ensure transparency, fast track acquisition process and give a push to ‘Make in India’ initiative.
• This policy will be applicable from April, lays the roadmap on how India, the world’s largest arms importer, will acquire defence equipment in the future.

Highlights:

• The DPP 2016 will have a new category, indigenously Designed, Developed and Manufactured (IDDM) platforms. It will be the priority route for procurements
• Within this two sub-categories have been created, one with mandatory 40 percent domestic content for a domestic design and the other mandating 60 percent local content if the design is not Indian.
• 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 Defense Production will fund private R&D for which various norms have been stipulated. Under this projects are eligible for up to 90 percent funding.
• The contentious issue of offsets has been amended from the current Rs. 300 crore to Rs. 2000 crore giving flexibility for foreign companies.
• The new policy also allows the Defence Acquisition Council to take a “fast-track” route to acquire weapons, something which was limited to only the armed forces till now.
• In a bid to cut down on the time taken for acquisition process, it mandates that all AONs (Acceptance of Necessity) of a particular platform will be valid for only six months as against the 12-month deadline now.
• Defence export clearances will now be granted online. The policy will also include ‘Start-up India’ initiative.
• For the first time, the army, navy and air force will each have dedicated “Project Management Units”, headed by two-star general rank officers. They will drive all Make projects relating to their respective services.
• DPP-2016 also seeks to overcome that defense procurement bugbear – “single vendor situations” – which often stall acquisition programmes because the vendor is perceived as enjoying too much leverage in the absence of competition.
• A review of the new DPP will be undertaken after six months.

Analysis:

• This aimed at boosting indigenous defence procurement and encouraging better participation from the Indian private sector.
• It is imperative that India succeeds at the earliest in creating a cutting-edge domestic military industrial base: no major nation state has transitioned to becoming a developed economy without one.
• This would create not only latest war machines but also hothouse innovations and technologies to improve overall scientific capabilities, and make India self-reliant at least in critical areas.
• If the ambition is to truly make Make in India a reality in the defense sector, then the DPP falls significantly short of expectations.
• Many private sector participants have been flagging a host of issues, and inbuilt biases against indigenization. There are two keyimpediments to India’s private sector becoming active participants in defense R&D and production: the monopoly enjoyed by defense public sector units, and the favors that foreign suppliers enjoy.
• DPSUs are the workhorses of the sector as well as the biggest drag on indigenous military research. A significant number of them are merely assembling foreign kits.
• Given India’s over-dependence on foreign military vendors, several biases have crept in favouring them in procurements.
• A foreign vendor gets most of his payment on self-certification of project progress, while Indian vendors have to wait for a government inspector’s certification, which can delay payments by several months.
• A foreign vendor enjoys upfront customs duty exemption, while the excise duty exemption for a local supplier is a reimbursement months after he has supplied an item.
• The new DPP may work towards expanding the number of participants in military tenders, but it may not help dramatically improve the present environment for all participants.

By: Vishal