Defence procurement: Offset threshold raised from Rs 300 crore to Rs 2,000 crore

By: | Updated: January 12, 2016 6:51 AM

The Defence Acquisition Council (DAC) on Monday enhanced the offset threshold for defence deals to Rs 2,000 crore from existing Rs 300 crore.

Manohar ParrikarManohar Parrikar said that certain duplicate clauses which resulted in time overruns in defence procurements have been eliminated in the new DPP. (PTI)

The Defence Acquisition Council (DAC) on Monday enhanced the offset threshold for defence deals to Rs 2,000 crore from existing Rs 300 crore. Indicating a shift from the existing policy, defence minister Manohar Parrikar indicated that the proposed Defence Procurement Policy (DPP) — clauses of which were cleared by DAC — will ease business with single vendors, which had led to major deadlocks in the previous regime.

The new policy, which is likely to be notified in two months will also ensure better quality procurement, with the government “ready” to pay “up to 10 per cent more price” for better equipment. He, however, said that the crucial aspects of the DPP such as blacklisting and strategic partnership are still being analysed and may take longer for roll out.

The increased offset threshold, meaning mandatory indigenous content of 30 per cent, will be applicable to defence contracts valued at Rs 2,000 crore and above.

So far, the limit was Rs 300 crore. Parrikar justified the decision saying that his government has taken decisions on defence contracts worth Rs 2 lakh crore and that the offsets through these contracts may touch Rs 1 lakh crore over the next 15 years.

Manohar Parrikar said that certain duplicate clauses which resulted in time overruns in defence procurements have been eliminated in the new DPP.

In order to boost indigenous defence manufacturing under Make in India, the DAC also cleared a new ‘Indigenous Design Development and Manufactured (IDMM)’ as the preferred category over the existing ‘Buy (Indian)’ category. Also, under the new DPP, the “Make” procedures will now be divided in three sub- categories — Make I — which will involve 90 per cent funding of development cost by the government, Make II — in which case, the government will refund 100 per cent of development cost in case Request for Proposal (RFP) is not issued for two years from the time of development of prototype and Make III — which will be reserved for small and medium scale enterprises.

Reiterating his stand on middlemen in defence procurements, Parrikar said that more clarity is required on the definition of middlemen and added that a salaried person on the payroll of a defence firm cannot be termed as an “agent”.

This, along with the blacklisting aspect of defence deals will be deliberated upon in the coming days. The much awaited notification for DPP, which is expected in “two months” will set the ball rolling for those projects which the government has so far cleared under the Make in India programme.

The DPP was under a revision and the ministry had appointed a high-level committee chaired by Dhirendra Singh to suggest changes in the same.

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