MoD Tweaks Procurement Rules To Encourage Indian Industry
Full text of press release: With the twin objective of infusing greater efficiency in the procurement process and strengthening the defence manufacturing base in the country, the Defence Acquisition Council, the apex decision making body of the MoD, took a series of decisions today, including amendments to Defence Procurement Procedure (DPP).
Defence Minister AK Antony, who chaired the Council meeting, said the only way forward for the country is rapid indigenization of defence products, with both the public and the private sectors playing pivotal roles in this endeavour. Antony said the government will make all efforts to create genuine level playing field for Indian manufacturing industries vis-à-vis Global Players.
Following are the highlights of the amendments to the DPP-2011:
1. Prioritisation of Various Categories for Capital Acquisitions under Defence Procurement Procedure: Preference for indigenous procurement in the Defence Production Policy 2011 has now been made a part of DPP through an amendment that provides for a preferred order of categorisation, with global cases being a choice of last resort. The order of preference, in decreasing order, shall be: (1) “Buy (Indian)”; (2) “Buy & Make (Indian)”; (3) “Make”; (4) “Buy & Make with ToT”; and (5) “Buy (Global)”. Any proposal to select a particular category must now state reasons for excluding the higher preferred category/ categories.
2. Release of Public Version of Long Term Integrated Perspective Plan (LTIPP): The DAC has approved the release of a public version of its 15-year perspective document (LTIPP), outlining the “Technology Perspective and Capability Roadmap” (TPCR) against LTIPP 2012-2027. The TPCR will provide useful guidance to the Indian Defence Industry for boosting its infrastructural capabilities and directing its R&D and technology investments.
3. Maintenance ToT (MToT) no longer through Nomination: MToT has been hitherto reserved largely for OFB and DPSUs through the nomination process. A DPP amendment has been approved that does away with nomination by Department of Defence Production and facilitates selection of MToT partners by Indian bidders. This measure is expected to have a positive impact on private sector participation in maintenance, repairs and overhaul work.
4. Advance Consultations for “Make” Procedure: The DAC has approved an amendment mandating consultations to begin sufficiently in advance of actual procurement by Service Head Quarters (SHQs), so that capital acquisition plans can be translated into national defence R&D and production plans. In addition, a high-level Committee has also been constituted for simplification of “Make” procedures, with a view to unleash the full potential of this important category.
5. Simplification of “Buy & Make (Indian)” Procedure: The DAC has approved an amendment further simplifying this complex category. Its procedures have been brought on par with other categorisations, resulting in faster processing of cases under this category.
6. Clear Definition of Indigenous Content: Increased indigenisation is important for our Armed Forces, in order that they have access to reliable supply chains in times of urgent need. Indigenous content has now been defined in an unambiguous manner, providing requisite clarity and a common understanding.
7. Ensuring faster progress in “Make” and “Buy & Make (Indian)” cases: The Ministry has a limited number of acquisition cases under “Make” and “Buy & Make (Indian)” categories, with an estimated value of Rs. 1,20,000 crore. Instructions have been issued for speedier conclusion of these cases.
8. Defence Items List: Indian defence industry was opened up in May 2001 for 100% private sector participation subject to licensing. The Defence Items List has been finalised by the Ministry and sent to DIPP for notification, which will bring required clarity in the licensing process.
9. Licensing for Dual Use Items: The Ministry has categorically clarified to DIPP that dual-use items will not require licensing, thereby bringing added clarity to the licensing process.
10. Consultations on Security Guidelines for Indian Defence Industry: Draft Security Guidelines that will apply to all licensed defence industries have been circulated for consultations with various stakeholders. It is expected that a complete security framework for Indian private industries participating in defence cases will be in place in the near future.
11. Resolution of Tax-related Issues: Resolution of deemed exports status for certain defence projects and rationalisation of tax and duty structures impinging on the Indian defence industry has been taken up by the MoD with the Ministry of Finance.
12. Funds for MSMEs in the Defence Sector: The Defence Production Policy 2011 requires the setting-up of a fund to provide necessary resources for development of defence equipment. In order to ensure regular supply of funds to MSMEs involved in manufacturing of defence products, SIDBI has decided to earmark an amount of Rs. 500 crore for providing loans, and further, a fund of Rs. 50 crore for equity support out of “India Opportunities Fund” managed by its subsidiary, namely, SIDBI Venture Capital Ltd.
13. Efficiency and Transparency in Defence Procurement: A stipulation to freeze the SQRs before the “Acceptance of Necessity” (AoN) stage has been accorded, and the validity of AoN has also been reduced from two years to one year. These measures are expected to expedite the acquisition process and increase transparency.
14. Enhanced Delegation of Financial Powers: The financial powers of Service Chiefs/ DG Coast Guard have been enhanced from Rs. 50 crore to Rs. 150 crore for capital acquisition cases.
15. Powers to DAC: Approval for all deviations from the Defence Procurement Procedure will henceforth be sought from the Defence Acquisition Council instead of the Defence Minister.