Attempting to streamline defence acquisitions and give a big impetus to indigenisation through the ‘Make in India’ initiative, the government has approved major changes to the Defence Procurement Procedure (DPP).
The Defence Acquisition Council (DAC) chaired by Defence Minister Manohar Parrikar met late on Monday evening to discuss the new DDP and gave its approval to the changes.
The highlights of the new procedure are a new category to promote domestic manufacturing, including government funding for Research & Development (R&D) and recognition of the Micro, Small and Medium Enterprises (MSME) in technology development.
“Recommendations of the expert committee headed by former Home Secretary Dhirendra Singh were considered and most of them were approved,” Mr. Parrikar said.
The DPP 2016 will have a new category, Indigenously Designed, Developed and Manufactured (IDDM) platforms, which 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 Defence Production will fund private R&D for which various norms have been stipulated. Under this projects are eligible for up to 90 percent funding.
Of this 20 percent will be given in advance and the tender issued in 24 months. In case the tender is not issued the development will be refunded. There is also a Rs. 10 crore for MSMEs.
In another significant change, the contentious issue of offsets has been amended from the current Rs. 300 crore to Rs. 2000 crore giving flexibility for foreign companies. Offset clause mandates that a foreign company should invest 30 percent of the contract value back into the country with a view to bring in technology. Offsets push up cost of contracts by 14-18 percent, officials said.
“We do not see too many offset obligations coming up as focus is on domestic manufacturing,” Mr. Parrikar said.
The traditional L1 (lowest bidder) system will get a makeover with enhanced performance given weightage of 10 percent from now on. L1 has been a limiting factor that on various occasions better equipment was left out due to marginal price difference.
