The Defence Expo has been deemed a major success, with all major defence manufacturers displaying the latest ware and vying for a bigger slice of military order. It was a golden moment when India unveiled the new Defence Procurement Procedure (DPP) at this juncture.
Speaking to Bloomberg TV India, Defence Minister Manohar Parrikar said the Centre’s policy focus is very clear in promoting Make in India and shunning “Buy Global”. If a foreign vendor is willing to sell its product to India, they can set up a unit in India. That is why we have loosened the requirements in the FDI policy, he said.
The top most priority of the DPP is Indian design, development and manufacturing. The second priority probably is that the procedure itself has been much more streamlined to make it time-efficient. The single vendor situation, which has been a major problem in most procurements, has been addressed. The single vendor situation now has to be either rejected or accepted by the Defence Acquisition Council (DAC) so that it does not become a fait accompli and then you have to reject the proposal and start over again. The third is the kind of parameters — it has been divided into Essential Parameter-A, Essential Parameter-B and Additional Desirable Parameters. So additional desirable parameters can be given additional marks by which even slightly costlier equipment is not necessary classified L1. It’s L1 and certain technical aspects. It is a qualitative one and both together make out certain equipment. It is not compulsory for all equipment. But Essential Parameter-A and Essential Parameter-B basically means that you can field existing equipment or a platform for the purpose of test certification or testing but you can add up one or two qualities or additional things which you require substantially after you get the order. No one is going to give you a platform as modified to your requirement totally. So the first parameter will generally be depending on the availability of the platform, where a minor modification can give you the performance. And the third one is “Make”. We want to push the “Make” category in a big way.
While most of the global defence equipment companies are here, you want to focus on Indian design develop and manufacture. What is the message that is going to the foreign companies?
There are two-three aspects to it. I have no reason why I should go to anyone else to buy a product if an Indian designed, developed and manufactured product exists. It does not mean that procurement stops there. There is an alternative given where it may not be fully Indian designed, developed and manufactured. If you manufacture it in India but you may have a tie-up for technology or you may have an understanding with foreign partners to develop things with 60 per cent indigenous content (IC), you can still be treated in category one.
Now, if both these categories are not available, you definitely go to buy Indian category where indigenous content is 40 per cent. Without asking any question on where it is developed or how it is developed, we can buy it if it is manufactured in India. One policy of the government that is very clear is that we are promoting Make in India and we are not promoting “Buy Global”. “Buy Global” is the last option. It is an extremely seriously considered last option. So if a foreign vendor is willing to sell its product to India, it can set up a unit in India.
That is why we have loosened the requirements in the FDI policy. We have taken out many of the items from industrial defence licence — almost two-thirds have been taken out. And in the case of balance requirements, whenever Make in India comes into picture, it is possible to have FDI beyond 49 per cent if the technology is in demand. So they (foreign companies) need not worry about their technology being stolen or replicated by someone. There are provisions where we have sort of laid out a pathway through which a foreign vendor can definitely supply to the defence sector. But the stress is on Make in India, which means that you make the products in India. And I am aware that you cannot make everything in India because there is an ecosystem that is required. That is why we are insisting on 40 per cent and sometime, in some cases, there is a power provided in the DPP even to reduce it to below 40 per cent with some justifications.
On the point of allowing foreign participation beyond 49 per cent, there is a bit of a concern and there is a difference in the opinion over the strategic partnership concept — there are some sections which believe that it is not correct while there are certain other people who support it. What is the reality of that situation?
Talking about DPP, one of the reasons why there was a delay was because I was personally involved in the drafting of this along with the officers. To get all the officers on board, their genuine concerns were addressed.
And we made some changes which I thought would be there without any problem in the basic concept of the DPP. Some delays did take place because my timelines were that the draft will come sometime in June-July last year and by October-November we should be able to put up the final draft. So there is a delay of three-four months. But I think that delay was worth it because on many of the issues, we have now come on board with everyone agreeing. So it is not about any differences. As far as strategic partner is concerned, they are following the same procedure. And I expect that is the next two months or maybe three months at the most, they should be able to put up a very clear line of action on strategic partner. We are trying to get it in two months but before that we will need the approval from the Finance Ministry as also Cabinet approval because it is in a specific mode of equipment.
What about the norms for black-listed firms?
That is also ready. We could not complete the discussion on March 21. The basic chapters have been published. The chapters have an influence on the annexure. So annexures are being checked and verified for the corrections based on whatever is provided in the DPP. All together probably in the next two weeks we should be able to print DPP in a booklet form. But it will come into force from April 1 for new procurement. Black-listing rules are ready. Before full the document comes in the public domain, they will also be promulgated. But the DAC is not required to go into it. It is the Ministry’s decision. Therefore, there will be a file after this decision.
In the case of FDI limit, it is now 49 per cent under the direct route and beyond that it can be decided at the ministerial level only.
So you don’t have to go to the Cabinet about increasing the FDI. We want to ensure a level playing field for taxation and foreign exchange. We went for a complaint redressal mechanism. Now every process has to be stopped because of a complaint. One who does not get the order has to use the complaint procedure. Complaints are being investigated.
We will initially get a lot of complaints. There have been 200-25 complaints in some cases. Blacklisting is now being changed to penal action against those who default. It can be a financial penalty and the last resort is black-listing.