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The Modi government had promised to cut the Gordian knot in which defence procurement and acquisitions were locked in. The major endeavour in this regard was to be a new Defence Procurement Procedure (DPP) to replace DPP 2013 that had been applicable so far.
The government had appointed the DhirendraSingh Committee to reconstruct a more practicable set of regulations that would also give greater transparency to the acquisition process. The Committee submitted its report in July 2015. It was extensively studied by all the stake holders–the industry, MoD and experts–before it was finalised and approved on 11 Januray.
The DPP introduces a new category – Indigenously Designed, Developed and Manufactured (IDDM). To qualify as an IDDM the product must have minimum 40% local components. Should the design not be Indian, 60% components will have to be locally sourced.
MSMEs will receive greater funding and support from the government especially in the area of R&D. Overall, there is greater emphasis on R&D with government funding up to 90% in some cases.
Project management teams will be set up by all three services under an officer of the rank of Major General or equivalent to ensure timelines are adhered to.
Among the more important issues that the new DPP addresses are raising of the offset obligation from Rs. 300 crore to Rs. 2000 crore. In any case, over a million dollar worth offsets are yet to be absorbed by the industry.
The DPP has however not yet addressed the issues of Strategic Partners and blacklisting. The Aatre Committee has been working on the issue of Strategic Partners. Apparently, these two issues will be taken up in the next meeting of the DAC.
BharatShakti.in approached a cross section of Indian Defence Industry stalwarts for comments on the new DPP. A few of them are reproduced beneath.
Jayant D Patil, Sr. VP, Head – Defence & Aerospace, Larsen & Toubro Limited
Very positive decision indicators on “ready to pay higher on superior performance”. Today, defence system are force multipliers and superior performance means better multipliers. This is what has been recognised by the MoD led by Hon’ble Raksha Mantri. Private sector industry is very positive on the new DPP.
Ashok Atluri, CMD, Zen Technologies
The new category of Indigenously Designed, Developed and Manufactured Equipment is what was required for the IDI. The impact will be far-reaching and will have a cascading effect on investments in R&D by the IDIs. India, from being a destination for low-cost manufacturing, will now begin the journey to being a hub for cutting-edge innovation; from being a consumer of out-dated equipment to being a designer and developer of innovative technologies; from being the world’s largest importer to being a nation with a substantial player in the global export market.
R Adm S Madhusudanan IN (Retd), Director, D’Gipro Enterprises
The measures announced as part of the amendments to the DPP are certainly a very welcome first step. They will certainly provide impetus to the Indian industry, particularly ‘Indian Company(ies)’, to attempt vigourous participation in the sector with a better chance of success. The easing of Offset regulations may also encourage
foreign OEMs to be more aggressive in their offerings. However, the devil as usual lies in the details and a better understanding of the issues can only be gained after the amended DPP is available in its entirety. I would therefore like to wait for a while to see the amendments to DPP 2013 before a more informed assessment can be made.
Dr. Vidya Sagar Abburi, CEO, Avantel Ltd.
This is very good news for the defence industry. I am extremely happy at the fundamental decision to give first priority to Design in India. This step has clearly differentiated the priority for the country in this sector.
The earlier DPP had no clarity except for a stated thrust on Make in India. But in the defence sector, Intellectual Property accounts for 80% of the valuation; not manufacturing. There is no point of Make in India without Design in India. That has no value.
Most people do not invest in R&D. They import, assemble and integrate. Everyone does this, including PSUs. There is no original work which is happening; it is a huge waste of our resources. So far, we have been far from self-reliant. There is a huge gap between capabilities that are being developed in countries like USA, France, etc. vis-a-vis what is available in India. We have no critical technology! All we do is import from outside. And the countries we import from give us technology that is not relevant to them, and hence India lags behind by 15 to 20 years.
So far, thinking skills of our scientists have not been deployed. Not only are they not doing research on pure science, they are also nor doing any original design projects. All they do is project management.
When BharatShakti asked, when could one expect to see the fruits of this policy in the defence sector, Dr Vidya Sagar said:
As soon as there is clarity in RFPs – that is, a requirement of preferential treatment, we will see the change.
Now, the big guys will invest in Design & Development. With the mandatory provision of 40% of the content to be sourced locally, and the 60% local content if the design is not Indian, companies will have to design in India in order to be competitive.
Design skills will be developed, the real brains from institutions like IITs will come forward and work for defence. That will add value. So the best people will now be employed in building the defence capability of the nation.
S. Rangarajan, CEO, Data Patterns (India) Pvt Ltd
At the outset, I have to say that our Defence Minister has indeed taken a very bold and visionary step in formulating the new DPP. This will, I am confident, go a long way in making India self sufficient in defence equipment. It will not only ensure substantial Indian IP development, it will also create Indian defence multinationals with exportable products with time.
Creating a new category (most preferred) for IDDM equipment will create market opportunities for companies willing to go the extra mile and develop Indian products. Indian industry should seize this opportunity that our Minister has created and develop world class products for our Services. It will not only reduce the cost of ownership of the equipment, but also allow lower lifetime costs and higher up-time. This category will also incentivise local IP development and create companies with unique capabilities, overtime.
Classifying essential parameters as A and B is an excellent step allowing more companies to participate initially, and upgrade based on orders, instead of spending upfront.
Enhanced performance parameters will allow better products to be procured.
Allowing private industries as production agencies with ToT and accepting single vendor are welcome steps. The step will truly allow more industries to participate in the defence segment.
A lot of thought has gone into the Make category. Bringing MSMEs into the Make category is a very important move which will definitely create companies with domain and scalability. This will create a solid foundation for strong and vibrant defence industry in India.
All in all, an outstanding DPP; visionary, bold and crafted with a lot of thought and commitment to genuinely enable “Make in India” defence systems and equipment.
I thank the Minister and everybody involved in making this happen and am happy that some of our suggestions have been considered.
Col Ranjit Singh (Retd), GM (Business Development), OIS-Advanced Technologies
The much awaited important contours of Defence Procurement Procedure have been announced. The basic thrust to promote Make in India is on expected lines. The proposed change of hiking the Offset clause limit for projects over Rs 2000 Cr is not likely to be in the interest of the Small and Medium Indian Industrial units. Further, the proposed Strategic Partner concept could again go against the MSMEs. Certain safeguards in this direction to look after the interest and promotion of MSMEs along with the need to boost indigenous defence industry, should be inbuilt.
For developing a creditable defence industry, development of a defence MSME network is important as well.
The introduction of provisions to fund R & D activities by private industry will go a long way in boosting defence industry and self reliance. The introduction of IDDM projects is another welcome step and this will require to be in sync with long term perspective plans of the defence forces.
BharatShakti.in will continue to obtain and publish more views from all segments of the Indian Defence Industry.
(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of BharatShakti.in)