Editor’s Note
There is a fine difference in the Defence Acquisition Procedure between the categories of ‘Buy {Indian-IDDM (Indigenously Designed, Developed and Manufactured)}’ and ‘Buy (Indian)’. When scrutinised, the difference is quite stark. Indigenous design and development are the fundamental platforms of IDDM. The article illustrates the issues that have a regressive influence on the growth of IDDM and proposes methodologies that need to be adopted to promote this critical need in consonance with our atmanirbharta (self-reliant) philosophy.
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The words ‘ATMANIRBHAR BHARAT’ printed in bold capitals on the top cover of the Defence Acquisition Procedure (DAP) 2020 leaves the reader in no doubt as to the DNA of this document that drives all defence acquisitions. This gets further corroborated by the opening sentence by the Defence Minister in the Foreword, which says, “DAP 2020 derives its ‘ethos’ and ‘spirit’ from the clarion call of an Atmanirbhar Bharat and Make in India”.
In order to keep the above spirit enshrined in the DAP alive, there is a need to be careful while making a choice between the categorisations of ‘Buy {Indian-IDDM (Indigenously Designed, Developed and Manufactured))’ and ‘Buy (Indian)’.
This work briefly flags the above premise and highlights the nuances involved:
Visiting the fine shade of difference
By introducing a new categorisation of ‘Buy (Indian-IDDM)’ in the DPP 2016, the then Defence Minister, the Late Manohar Parrikar, gave a shot-in-arm to the Indian defence industry. What is the fine shade of difference between ‘Buy (Indian-IDDM)’ and ‘Buy (Indian)’? ‘Indigenous’ for a one-word answer. This is enumerated further:
While ‘Buy (Indian-IDDM)’ requires that the product is indigenously designed, developed and manufactured with a minimum of 50 per cent Indigenous Content (IC), ‘Buy (Indian)’ has no stipulation of an ‘indigenous design and development, albeit the IC content requirement in Buy Indian is pegged at a higher 60%.
This difference will be used in the arguments that follow:
Intellectual Property (IP) the Soul of Atmanirbharta
What will define Atmanirbharta? It will simply be the IP to include Patents, Trademarks and Copyrights developed painstakingly and with huge investments of time, funds, and skilled manpower by an Indian company. IP is as much as 70 per cent (if not more) of the cost of the product. The typical BOM + manufacturing cost of any high-IP product is up to 30 per cent. Thus, Indian IP + manufacturing ability will define our Atmanirbhar muscle.
The Impact of Incorrect Categorisation
With the primacy of IP as stated above, let us examine the impact of an incorrect categorisation:
- Suppose there is a felt need for a product by the Services for which the Indian Industry has developed 100 per cent capability of design, development and manufacture of Indian IP ready.
- However, instead of the rightly deserved categorisation of Buy (IDDM), the procurement case is categorised Buy (Indian).
The impact of this categorisation is likely to unroll in this manner:
- The Indian players who did not have the IP will now contact Foreign Original Equipment Manufacturers (FOEMs) to bring their products.
- The IC requirements (never to touch IP) are likely to be spread over low-end/low-technology items and peripherals to reach the required percentage.
- The FOEMs (presumably big players), once in the game in this manner, will adopt ‘predatory pricing’ to edge out the fledgling Indian players who have painstakingly and by putting their time and money over tight budgets, developed the IP and are 100 per cent capable of meeting the user requirement.
- Going in for such FOEMs will not only mean ‘fund-flight’ out of the country (IP is a major cost) but also be a great discouragement to the Indian player who built himself up over the years to be fully compliant. Truly a stab in the back of Atmanirbhar Bharat.
Counter Arguments to Buy IDDM
Buy (Indian), which indeed looks out of place in this scenario, still gets awarded because of a number of counter-arguments. These need to be faced upfront. This is briefly attempted:
Need More Competition
The argument is that since the Indian players that have developed the IP and are compliant under IDDM are very few (one or two), we want more competition hence Buy (Indian) categorisation is better.
The following needs to be stated:
- In a fledgling Indian industry, which is just learning to stand on its feet, the OEMs that have come all the way to be IDDM compliant will indeed be a few. And these exceptional few must be given wings to fly and not culled.
- The IDDM very much allow single-vendor situation.
- Not following IDDM will be undercutting genuine Indian companies that have built the Indian IPs in favour of pretenders who tie up with FOEMs only to show compliance.
- If a genuine Indian IDDM company gets an order of $ 10 million, it kicks in a virtuous cycle where they put more money into R&D and make the product to global standards, which in turn may generate an import revenue of $100 million. But suppose a foreign company gets an order of $10 million against an Indian IDDM company. In that case, India will lose both the foreign exchange and the technological independence inherent in encouraging an IDDM company.
Single Vendors/Dominant players will Rule Cost.
Another argument is that IDDM players are far and few may normally result in single/dominant vendors who will rule the costs. Better is to have more competition under Buy (Indian).
The following is stated:
- In the current journey representing the ‘coming-of-age’ of the Indian industry, surely the companies who will finally make the grade under IDDM will be far and few and may even be single-vendor.
- Very thoughtfully, therefore, the IDDM procedure allows for single-vendor situations.
- That these companies will abuse the single-vendor situation by quoting very high is indeed far-fetched. The world benchmark costs are easily accessible. The IDDM companies can be made to match benchmarks.
- Another argument is that we do not want ‘dominant players’. We want more competition (under Buy Indian) that is actually lop-sided. India requires ‘dominant players’ who not only can meet Indian demands but could also become ‘global champions’ for the world for their IP-owned products earning precious foreign exchange for the country.
- In Defence procurement, where there is only one buyer, i.e., Indian Armed Forces, expecting multiple players is incorrect. What to talk of one country, the fact is that the world over, there are only a few sellers of major defence products. Therefore, the argument of having multiple players must be seen in its correct perspective.
- The bottom line is that genuine IDDM company needs to be protected and nurtured against foreign companies trying to attack Indian aspirations for technological independence.
Lack of time
The argument of lack of time (especially during the procurement under the EP/FTP route etc.) for carrying technical scrutiny of the vendor’s claim of indigenous design (and hence going for Buy Indian) cannot stand the test of logic. Verification of IDDM (the software, mechanical and electronics designs, etc.) claims can be done very quickly by competent officers during the trial. It would be very pertinent to levy heavy penalties on companies that make false claims, including blacklisting and forfeiting the deposits, if any. A lack of time plea cannot be allowed to kill the rightful aspiration of a genuine IDDM player with an Indian IP. Atmanirbharta is too sacrosanct to be allowed to be violated by giving such counterarguments.
If Atmanirbharta is to grow and IDDM becomes a hard reality, Indian companies with Indian IP diligently developed by investing hugely against tight budgets that meet the user requirement 100 per cent must be promoted as enshrined in the spirit of Buy (IDDM) in DAP 2020.
Lt Gen VK Saxena (Retd)
