New Defence procurement plan to fire up local manufacturers

Nayanima Basu New Delhi | Updated on January 19, 2018



Defence Minister Manohar Parrikar


Raises offset level to ₹2,000 cr; opens new category of indigenous acquisition

After a long wait, the Ministry of Defence (MoD) on Monday unveiled the Defence Procurement Procedure (DPP) 2016, which will be effective from March. However, the process to select strategic partners, an integral part of the DPP, is expected to take longer.

The new policy aims at giving a boost to the Make in India initiative, a greater role for the private sector, and a big push to the medium and small scale sector.

Under DPP 2016, which was finalised by the Defence Acquisition Council (DAC) chaired by Defence Minister Manohar Parrikar, the offset level has been raised to ₹2,000 crore from ₹300 crore currently.

“The offsets do come at a cost… anywhere between 14 and 18 per cent. Already offsets have touched $5 billion and once all the projects in the pipeline are cleared, they will stand at $10-12 billion,” Parrikar said while releasing the new DPP, which was sealed after a three-hour-long meeting of the DAC.

According to sources, the Centre is worried that Indian industry will “not be able” absorb such massive offsets; ultimately it impacts the final product, raising the price that the Ministry has to bear.

On the selection of strategic partners, the taskforce, constituted under former DRDO Chief VK Aatre, is yet to finalise its report, which is expected to be submitted by January 16.

After the submission of this report, it will be included as a separate chapter in the new DPP after the approval of the Union Cabinet. This process can take up to eight months, sources told BusinessLine.

“Our aim is to build an indigenous ecosystem around the strategic partners,” the Minister said, adding that the procedure to select strategic partners will be done in a “clean and transparent” manner.

In an effort to boost the domestic defence industry, the Centre has introduced a category for acquisition — Indigenously Designed Developed and Manufactured (IDDM). While indigenously designed, developed and manufactured equipment must have at least 40 per cent local components, if the design is not Indian, 60 per cent of the components must be locally sourced.

The Minister added that certain procedures have been done away to speed up the process of acquisition. The Centre has also made it easy for vendors to participate in Defence deals.

In a major departure from the previous DPPs, the Modi government sought to give more prominence to Defence firms operating in the MSME segment. Projects that will be government funded and with estimated development cost of less than ₹10 crore will be reserved for MSMEs.

Published on January 11, 2016

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