New defence procurement procedure focuses on more indigenisation

The Defence Acquisition Council on Monday finalised parts of the new Defence Procurement Procedure (DPP) which focuses on higher level of indigenisation, Defence Minister Manohar Parrikar said.

At a briefing following the council meeting, the minister said the DPP was finalised, but some changes were to be made.

This, however, does not include the chapter on 'strategic partners', which will lay the guidelines on identifying partners from the private sector for key strategic manufacturing, or the policy on blacklisting.

A chapter on ship-building also remains pending for approval.

The revised DPP envisages providing a boost to the 'Make in India' initiative, enhanced role for private sector, and promoting medium and small scale industries.

The new DPP introduces a new category of Buy Indian - Indigenous Design Development and Manufacturing (IDDM), under which indigenously designed equipment with 40 percent content will be procured.

In case where it is difficult to prove if the product was developed in India, those with 60 percent indigenisation will be taken under this category.

This category will get first preference in all buying.

Parrikar said a preamble will also be there in the DPP, which will define the "logic of procurement" and stress on 'Make in India'.

The minister said the process of finalising and notifying the new DPP will take at least two months.

The chapter on strategic partners will, however, take a few more months as the report of a committee led by former DRDO chief V.K. Aatre is likely to give its report by January 15.

Under the new DPP, the RFP (request for proposal) will have a provision for 'enhanced performance parameters' wherein vendors additional credits will be given to a product's performance, giving it an edge over pricing.

However, the enhancement in price cannot exceed 10 percent of the cost.

The offset clause, which has been creating hiccups in deals, have been limited, with the new procedure saying only deals worth over Rs.2,000 crore will include an offset clause.

So far, the limit was Rs.300 crore for the offset clause, which is a provision that makes it mandatory for foreign companies to invest a certain percentage of the cost in Indian partners.

"We have offsets worth Rs.5 million signed, and more offsets worth Rs.8-10 million are in pipeline. It will take us 10-15 years to absorb that," Parrikar said, adding that offsets take up the prices of a deal.

Asked about the policy on blacklisting, the minister said it will be a separate document and not a part of the DPP.

Promoting private sector, this policy document will have provisions to involve private industry as production agencies and technology transfer partners.

The 'Make' category has been divided into three sub categories, with the first one, Make-I involving 90 percent government funding for development cost, and provision to reimburse remaining 10 percent.

The Make-II category will be industry funded, but with the rider that 100 percent refund will be given to successful developers if there is no procurement in two years.

The Make-III category is for the MSMEs, and will be reserved for projects worth less than Rs.3 crore, with provisions same as the Make-II category.

Only firms with majority stake and controlled by resident Indians will come under Make categories.