Simplified defence procurement procedure likely next week: Parrikar

A “simplified and time-bound” defence procurement procedure (DPP) is expected in the next few weeks, aiming to help smoothen defence procurement. The next revision of the DPP will encourage more private sector companies in India to manufacture military hardware by forming collaborative ventures with their overseas partners and strike deals with new counterparts, said sources.

“Everyone is eagerly awaiting the DPP,” remarked Defence Minister Manohar Parrikar. “It could become a reality in a couple of weeks, and a slew of measures will be introduced to encourage private industry in the country to provide cutting edge technology, that can be executed even in remote places, and that can be delivered with 100 per cent accuracy,” Parrikar told a recent gathering on ‘Make in India’.

A Committee of Experts has recommended changes to the DPP 2013. Sources indicated that the Committee has suggested that a specially instituted task force select an Indian Strategic Partner for the development of a particular platform.

“The strategic partner would participate as a prime contractor in government-to-government negotiations with foreign original equipment manufacturers (OEMs), and stringent audit and oversight mechanisms would be put in place for performance and financial review,” said sources.

Kabir Bogra, who heads the defence practice at Khaitan & Co, said the government has “constituted a task force to prescribe a detailed selection procedure for strategic partners under the chairmanship of the former chief of DRDO (Defence Research and Development Organisation), V K Aatre.”

Bogra added that the committee has made substantive and procedural recommendations to improve the defence procurement procedures, “with the overall objective of increasing participation of domestic private firms.”

With global arms manufacturers keenly awaiting the relaxation of rules to tap the defence sector, the world’s fourth largest importer of militaryware, India, is keen to source most of its requirement from the domestic industry.

Parrikar informed that ‘Make in India’ “is a very important aspect of the current government's policy, and the one department where it can be a success is the defence industry”. He added DPP 2015 would position India as a regional production and export hub for manufacturing.

India’s capital expenditure in defence is estimated at a whopping $245 billion spread over a decade. The last Budget had estimated defence capex at ₹95,377 crore, or $15 billion during FY16.

Analysts tracking the sector indicated that though India had first scripted a DPP way back in 1992, which underwent frequent revisions since 2003, it has met with limited success.

As Parrikar pointed out, the aim of the revised DPP is to make India “an attractive zone of consideration" for foreign defence players. The DPP 2015 is a much-awaited document that will "consider granting automatic increase in price (to a defence contract) even if some delay takes place.”

The new DPP is set to have an inclusion of price escalation clause in the request for proposal (RFP), to deal with any delays in contract negotiation and execution. With regards to the transfer of technology (ToT), the option of negotiating ToT after the date of execution of the contract has been included in the new DPP, “as it may not always be feasible to negotiate ToT in the initial stages of procurement,” said analysts.

The Defence Minister said small and medium-size enterprises would be given due weightage for their innovation.