New Defence Procurement Policy 2016

Recently the Defence Acquisition Council has cleared certain clauses of the proposed new Defence Procurement Policy (DPP). The DPP 2016 might be notified by April, 2016. The new DPP is based on the recommendations of the Dhirendra Singh Committee.

What are ‘offsets’?

Offsets are basically benefits provided to a buyer by a seller. For example, the technology provided to domestic industries by a foreign vendor selling equipment to India. In India, the offsets policy was introduced first time in Defence Procurement Procedure (DPP) 2005. Later several revisions were made. The DPP 2013 states that the objective of the defence offset policy is to development of domestic defence industry to make them internationally competitive enterprises.
As per the present defence offset policy, a foreign company which invests more than Rs 300 crore in India has to buy at least 30 per cent of the total value of the supplies locally. The minimum contract value for which offsets are mandatory has now been revised from Rs 300 crore to Rs 2,000 crore.

How the raised offline baseline will benefit ‘Make in India’?

It will allow the small contract to escape the offset obligations. But the government is arguing that offsets increased the cost of product by 14-18%. Presently government has mobilised defence contracts worth Rs 2 lakh crore, which will bring the offset worth Rs 1 lakh crore over the next 15 years. The Indian industry may not be able to absorb all of this.

What are the other elements in the new DPP?

  • The new DPP is expected to push ‘Make in India’ initiative. A new category, ‘Indigenously Designed, Developed and Manufactured’ will be introduced. Under this category, with at least 40 per cent indigenous content, will get top priority and will be first to be chosen for tenders.
  • Three different sub-categories under ‘Make’ procedures will be introduced.
  • ‘Make I’ – Government will refund 90% of the development cost.
  • ‘Make II’ – Government will refund 100% of the development cost but the request for proposal should not be issued for two years from the time of development of prototype.
  • ‘Make III’ – It will be reserved for small and medium scale enterprises.
  • A new provision to offer “up to 10% more price” to better equipment will be introduced.
  • The Acceptance of Necessity (AoN) validity will be brought down to six months from earlier one year. IT means tender should be issued faster.