New policy promotes designing defence equipment
Though increasing the limit for defence offsets from Rs 300 crore to Rs 2,000 crore is odd since it will slow down indigenisation of defence equipment, other parts of defence minister Manohar Parikkar’s defence procurement policy will push the Make-in-India programme effectively. To begin with, after many months of the government talking of pushing Make-in-India through defence production, the new policy explicitly gives high priority to wholly Indian products, followed by buy-and-make and the lowest priority accorded to the imported or buy category. What is even more interesting is the introduction of a new category—Indian Designed, Developed and Manufactured (IDMM)—which will be the “most preferred acquisition category, above the existing ‘Buy (Indian)’ category”. To qualify for this, apart from being designed and developed in India, the local content has to be at least 40%. Even more progressive, especially in a government system that is so focused on L-1 (lowest bidder) and not having a single bidder, is the policy explicitly stating this will be scrapped. So, while the lowest bid will get selected under normal circumstances, Parikkar’s policy clearly says that another bidder offering a superior product will also be considered—in other words, extra scores will be given for product quality. Also, single-bids will be examined and, if there is justification given for them, they will be accepted.
None of this is to say that there will be surge in Indian-made defence equipment or design, so it would be naïve to write off the policy when this does not happen. To use an example from the far less complex automobile space, it was several decades after Suzuki tied up with Maruti in India that the latter began exporting—it has taken more than three decades for Maruti to finally export back to the parent country Japan. Indian companies in the defence sector will have to prove their capability, both in design and manufacturing, and it can take decades for meaningful progress in most areas—the important thing, though, is that the policy environment is more supportive and explicit in its focus. There are other issues that need resolving as well including some on taxation. And, as Ajai Shukla reported in Business Standard some months ago, the evaluation metric for a Future Infantry Combat Vehicle was made in such a way that Tata Motors’ global revenues/profits would not be taken into account—as a result, the company didn’t look as formidable as it would have looked and, thanks to a huge loss in the Indian operations in FY15, Tata Motors may even get knocked out of the ring completely. The defence procurement process, as any local or foreign vendor will tell you, is very long-drawn and needs to be streamlined if Make-in-India is to get a push. Enough has been written about the preferences given to defence PSUs over the private sector. All of these are issues for defence minister Parikkar to negotiate if he has to succeed but, for now, there can be little doubt that the new policy is a great start.