The government has given its nod to two chapters of the much awaited Defence Procurement Procedure (DPP) with an aim to boost ‘Make in India’ initiative and provide a major role for the private sector in arms manufacturing.
Defence experts opine that one will have to wait for the fine print of the changes being made in DPP 2013 before passing a verdict on whether the new DPP will usher in an era of expeditious procurements. The announcement made on Monday leaves many issues unanswered. Besides recommending opening up of social sector for Offsets, experts have said this change of limit is not going to help.
Defence minister Manohar Parrikar, who chaired the meeting of the Defence Acquisition Council on Monday, said, “The notification of the new DPP-2016 would be issued in two months time, as some parts of the revised DPP such as the ‘Strategic Partners’ would have to be debated by the Cabinet and approved by it.”
The concept of ‘Strategic Partners’ would be finalised only after receiving the full report of the Atre committee that is to make recommendations on the matter. However, the ‘Strategic Partners’ policy would not be “nomination” of a private industry to manufacture big projects such as aircraft, helicopters, warships, but through “invitation” of the private player in the defence sector.
The new DPP plans to ease the procurement processes and gives weightage to indigenous products in the acquisition process, apart from increasing the participation of the private sector, with particular emphasis on Micro, Small and Medium Enterprises (MSME). The DPP will have a new category called the ‘IDDM’ or ‘Indigenously Designed, Developed and Manufactured’ platforms. This will get top priority and will be first to be chosen for tenders. Besides that, this will have two sub-categories — one, it will be mandatory to have 40% local content in case the design is also indigenous. Two, in case the design is not Indian, 60% local content will be mandatory.
For the benefit of foreign Original Equipment Manufacturers (OEMs), the new DPP has adequately relaxed the offsets clause, making it now mandatory for only those contracts that would be worth over Rs 2,000 crore ($300 million). The earlier DPP had made it mandatory for foreign contracts worth Rs 300 crore ($45 million) or more.
While it is true that the foreign vendors have been complaining of lack of capacity of the Indian industry to absorb offsets, there is no denying that building up this capacity was one of the objectives of the offset policy.
Sharing his view on the change in the Offsets limit, a former financial advisor (Acquisition), MoD, Amit Cowshish, says, “It was expected when the offset policy was introduced that it would help Indian defence industry, particularly in the private sector, to build up this capacity. It was also known when the policy was introduced that there is a cost attached to implementation of offsets. Apparently, the government was happy to bear this cost to promote the Indian defence industry.” “It would, therefore, be somewhat ironic to cite these as some of the reasons for increasing the threshold at which offsets would kick in from Rs 300 crore to Rs 2,000 crore,” adds Cowshish.
While this change implies that there will be fewer offset contracts to be negotiated and the ones that do not entail offsets could be clinchéd faster, the smaller players who stood to gain more from the offsets will not more be able to benefit from a larger basket of offset contracts, experts observe. Puneet Kaura, MD and CEO, Samtel Avionics, said, “As another step in the ‘Make in India’ journey, the proposed changes are an evidence that the government has a firm focus on developing the indigenous manufacturers, especially the MSMEs. We welcome the move to introduce the IDDM category in the DPP as it will back companies like us who have proven competencies in indigenous design, development and manufacturing. Furthermore, the announcement of funding by the government for R&D purposes will help build a technology base in the country.”