Defence Procurement Procedure 2016:
Need for procurement policy:
- The fact that India faces a combination of security threats from both state and non-state actors is an obvious reason why it needs to be self-reliant in military equipment
- India has all the necessary prerequisites for a robust military-industrial complex: a diverse private sector, a large base of engineering institutes, and a growing defence budget..
- There is another important reason why India needs an indigenous military-industrial complex: it will significantly reduce the potential for corruption in military procurement.
Highlights of DPP 2016:
- The new policy places the highest preference to a newly incorporated procurement class called ‘Buy Indian-IDDM’, with IDDM denoting Indigenous Designed Developed and Manufactured…
- This category refers to procurement from an Indian vendor, products that are indigenously designed, developed and manufactured with a minimum of 40 per cent local content, or products having 60 per cent indigenous content if not designed and developed within the country.
- Offsets clause increased from the current Rs. 300 crore to Rs. 2000 crore giving flexibility for foreign companies
- Defense ministry has also decided to fund private R&D, so as to build a technology base
- ‘Empowered committee’ is created to solve disputes or unforeseen issues
- Make’ projects, which entail indigenous design and development of prototypes of futuristic systems by Indian vendors in collaboration with foreign companies. There will now be two categories of such projects:
- those funded by the MoD,
- self-funded by the developers.
- Funding of projects by the MoD has been increased from 80 to 90 per cent. The balance 10 per cent will also be reimbursed if the RFP for the product is not issued within two years of the successful development of the prototype. The development agencies will also be able to get a mobilisation advance of 20 per cent of the estimated cost of development
- . Self-funded projects undertaken by Indian industry will also result in the entire cost of development being reimbursed by the MoD if the RFP is not issued within two years of the successful development of the prototype.
- A 10 per cent weightage has been introduced for superior technology, instead of selecting the lowest bidder only in financial terms.
- Single vendor cases will be processed too with due justification. These single vendor used to enjoy monopoly because of greater technological know-how and government used to neglect them but now even they can be allowed
- .Boost to MSME sector through Make-III category
- The new DPP will be applicable to all cases that come up for Acceptance of Necessity (AoN) on or after 01 April 2016
- The acquisition cycle, envisaged in DPP 2016, comprises 12 stages, one more than the 11 stages envisaged in DPP 2013.The number of stages has gone up only because DPP 2016 lists Request for Information (RFI) as the first stage while DPP 2013 mentioned it as only one of the requirements rather than listing it as one of the stages in procurement
- the Services Equipment Policy Committees (SEPCs), which are responsible for finalising SQRs, will now be able to seek the assistance of experts. This should help in formulation of more realistic SQRs
- a procedure has been laid down to deal with instances of change in the name of a vendor at any stage during the process of procurement due to change in business strategy, merger and acquisitions, or any other reason.
- It may be recalled that earlier DPPs also talked about sharing the future needs of the Armed Forces with the industry by releasing a Technology Perspective and Capability Roadmap (TPCR), covering details of the acquisition plans for a period of 15 years, so that the industry could build up its capabilities to meet the requirements. It is anybody’s guess whether the TPCR notified in April 2013 achieved that objective. DPP 2016 reiterates the need for a TPCR, but does not indicate if any changes are contemplated in its format to make it more useful for the industry.
comparision with DPP 2013:
- Procurement categories where created in DPP 2013, in which a hierarchy with ‘Buy (Indian)’ as the most preferred category, followed by ‘Buy and Make (Indian)’, ‘Make (Indian)’, ‘Buy and Make’ and ‘Buy (Global)’. While DPP 2016 established IDDM
platform for indigenous companies.
- . Though DPP 2013 provided hierarchy but it did not prescribe the guidelines for selection of a particular category in preference to another. While DPP 2016 created two sub-categories under IDDM, making the system more transparent.
- DAC was given charge to solve disputes, while new policy created a new committee to handle these cases.
- The acquisition cycle, envisaged in DPP 2016, comprises 12 stages, one more than the 11 stages envisaged in DPP 2013
- DPP’s push to promote domestic manufacturing, including government funding for R&D
- recognition of the MSME in technology development; will surely give impetus to ‘Make in India’, empowering defence sector for indigenisation.
- gives greater weightage to the domestic producer.
- The DPP is noticeable for the absence of Chapter VII, titled ‘Strategic Partners and Partnerships’, which the Defence Minister said would be notified separately. Under Strategic Partnerships, select Indian private companies were to be given preferential status in major defence projects.
- The inability of the Centre to finalise a credible policy to radically increase indigenous military manufacturing is a sure sign that India will remain heavily dependent on defence imports.
- The first chapter of DPP 2016 has been carved out of Chapter I of DPP 2013. The most notable feature of this chapter is the introduction of a new procurement category: ‘Buy (Indian Designed, Developed and Manufactured)’, or Buy (IDDM).
- This category refers to procurement from Indian vendors of products that are indigenously designed, developed and manufactured and have at least 40 per cent indigenous content. If the product is not designed and developed indigenously, it will have to have 60 per cent indigenous content.
- This is bound to clash with the ‘Buy (Indian)’ category in which the product to be procured from Indian vendors will also now be required to have an indigenous content of 40 per cent, instead of 30 per cent as has been the case so far.
- Be that as it may, it can only be hoped that ‘Buy (IDDM)’ will encourage indigenous design and development of products, which is what it is intended for. It replaces ‘Buy (Indian)’ as the most preferred category in the hierarchy of six procurement categories, the others being ‘Buy and Make (Indian)’, ‘Buy and Make’, Buy (Global)’, and ‘Make’.
- The first chapter also defines ‘Indian vendor’ as an entity that is compliant with industrial licensing and other regulatory requirements as per Indian law. It does not, however, answer the question whether wholly-owned subsidiaries of foreign companies would qualify as Indian Offset Partners (IOPs).
- The threshold for offsets has been raised from INR 300 crore to 2,000 crore but the detailed offset guidelines, which appear as one of the appendices in the DPP, have not yet been notified.