Major Defence Procurement Models in India

The Defence Acquisition Procedure (DAP) 2020 is the main policy framework for capital procurement by the Indian Armed Forces. It replaced the Defence Procurement Procedure (DPP) 2016 and gives top priority to indigenous design, development, and manufacturing.

Evolution of Defence Procurement in India

The capital acquisition of military hardware for the Indian Armed Forces operates under the Defence Acquisition Procedure (DAP) 2020. This document replaced the Defence Procurement Procedure (DPP) 2016. It serves as the primary policy framework for buying warships, aircraft, tanks, and missiles. The framework covers requirements for the Army, Navy, Air Force, and Coast Guard. The primary objective is to build self-reliance in defence manufacturing. It also aims to shorten acquisition timelines. The Defence Acquisition Council (DAC), chaired by the Defence Minister, is the apex decision-making body for these procurements.

Hierarchical Prioritisation of Procurement Models

To encourage domestic development, DAP 2020 ranks procurement models in a strict hierarchy. The Ministry of Defence gives the highest priority to models with maximum indigenous design and manufacturing content. Direct imports are placed at the bottom of this preference list.

The table below outlines the major acquisition models along with their minimum Indigenous Content (IC) requirements.

The ‘Buy’ Procurement Categories

Buy (Indian-IDDM)

The acronym IDDM stands for Indigenously Designed, Developed, and Manufactured. This is the most preferred category for capital acquisition. To qualify, the product must have an indigenous design. At least 50% of its content, calculated on a cost basis, must be manufactured in India. This model encourages local research and development (R&D).

Buy (Indian)

Under this model, the Ministry of Defence purchases equipment from Indian vendors. The procurement requires a minimum of 50% indigenous content if the platform has an indigenous design. If the design is foreign, the required indigenous content rises to a minimum of 60%.

Buy and Make (Indian)

This model involves buying an initial batch of fully formed equipment from a foreign supplier. The remaining units are then manufactured in India by an Indian partner through a Transfer of Technology (ToT). The indigenous content must be at least 50% of the manufactured portion of the contract.

Buy (Global – Manufacture in India)

This category allows foreign manufacturers to participate directly in Indian defence tenders. However, the foreign vendor must manufacture the entire platform or its spares in India. They can also set up Maintenance, Repair, and Overhaul (MRO) facilities in India. This is done through their Indian subsidiary or an Indian joint venture partner. The overall procurement must contain a minimum of 50% indigenous content.

Buy (Global)

This model represents outright purchase from foreign or domestic vendors. It is the least preferred option. It is used when the required technology is highly specialized and unavailable within the country. If an Indian vendor participates, they must offer at least 30% indigenous content. No such requirement applies to foreign vendors.

The ‘Make’ Procedure for Indigenous Development

The ‘Make’ categories focus on prototype design and development by the Indian defence industry. It involves both public and private sector participation.

Make-I (Government Funded)

This sub-category involves the design and development of major platforms, systems, or equipment. The Union government funds up to 70% of the prototype development cost. This funding is capped at Rs 250 crore per development agency. The remaining cost is borne by the chosen industry partner. A minimum of 50% indigenous content is mandatory for the final product.

Make-II (Industry Funded)

In this model, the domestic industry designs and develops prototypes with its own funds. No financial support is provided by the government. It is primarily used for import substitution and developing innovative products. Successful developers receive an assured procurement contract. The minimum indigenous content requirement is 50%.

Make-III (Indigenous Manufacture under ToT)

This model covers military hardware that is not designed or developed within India but can be manufactured locally. The Indian firms manufacture these platforms through joint ventures or technical collaboration with foreign suppliers. It requires a minimum of 60% indigenous content.

The Strategic Partnership Model (SPM)

The Strategic Partnership Model was introduced based on the recommendations of the Dhirendra Singh Committee. It aims to revitalize the defence industrial ecosystem by bringing major private sector companies into defence manufacturing.

Under this model, the Ministry of Defence identifies specific Indian private firms to act as Strategic Partners. These firms tie up with foreign suppliers to establish domestic manufacturing facilities and supply chains. The model targets long-term capability building for large platforms.

The model is currently confined to four critical segments:

• Single-engine fighter aircraft: Procurement of single-engine fighter aircraft constitutes the first segment.
• Helicopters: Manufacturing of utility and naval helicopters represents the second segment.
• Submarines: Construction of conventional submarines forms the third segment.
• Armoured platforms: Production of main battle tanks and armoured fighting vehicles is the fourth segment.

The Leasing Model

DAP 2020 introduced leasing as a new method of defence acquisition. This model acts as an alternative to outright purchase. It helps the armed forces manage immediate operational requirements without incurring massive upfront capital expenditures.

Key Aspects of Leasing

• Application: It is used for operating assets that are not directly deployed in actual combat, such as transport fleets, flight simulators, and trainers.
• Types: The military can opt for either an operational lease or a financial lease depending on the asset life.
• Advantages: It facilitates quicker induction of technology, reduces immediate budgetary pressures, and shifts maintenance responsibilities to the lessor.

Innovation and Other Procurement Channels

Innovations for Defence Excellence (iDEX)

The iDEX initiative aims to foster innovation in the Indian defence sector. It engages startups, individual innovators, and MSMEs. The Ministry of Defence provides funding and mentorship to develop prototypes. Successful prototypes are then procured under the Buy (Indian-IDDM) or Buy (Indian) categories.

Technology Development Fund (TDF)

The TDF is executed by the Defence Research and Development Organisation (DRDO). It provides financial support to MSMEs and academia. This funding helps them develop dual-use technologies and advanced military systems.

The Defence Acquisition Process Flow

Capital procurement follows a structured sequence of administrative steps. This ensures transparency, accountability, and fiscal propriety.

• Identification of Need: The Service Headquarters (SHQ) identifies a capability gap in its current inventory.
• Formulation of SQRs: The SHQ drafts the Services Qualitative Requirements (SQR) detailing the technical specifications of the required equipment.
• Acceptance of Necessity (AoN): The proposal goes before the Defence Acquisition Council (DAC), which grants the AoN and determines the procurement route.
• Request for Proposal (RFP): The Ministry of Defence issues the tender document (RFP) to eligible vendors.
• Technical Evaluation: The Technical Evaluation Committee (TEC) assesses the responses from the bidders.
• Field Trials: The shortlisted equipment undergoes physical trials under diverse weather and terrain conditions.
• Staff Evaluation: The trial results are analyzed to prepare a list of compliant vendors.
• Contract Negotiation: The Contract Negotiation Committee (CNC) conducts commercial negotiations with the lowest compliant bidder (L1).
• Final Approval: The contract is sent to the competent financial authority, which may be the Defence Minister or the Cabinet Committee on Security (CCS), for final financial approval.

Key Facts and Trivia

• Historical Origin: The Defence Procurement Procedure (DPP) was first initiated in 2002 to streamline military purchases following the Kargil War.
• First Lease Case: Under the leasing model introduced in 2020, the Indian Navy leased two MQ-9B SeaGuardian unmanned aerial vehicles from a United States firm.
• Project Zorawar: The development of the Indian Light Tank under Project Zorawar is a prominent project undertaken through the Make-I category.
• Offset Exemption: Under DAP 2020, offset obligations do not apply to fast-track acquisitions, single-vendor contracts, and Inter-Governmental Agreements (IGA).
• FDI Limits: Foreign Direct Investment (FDI) in defence manufacturing is allowed up to 74% under the automatic route and up to 100% via the government route.

Rare Facts for Prelims

• DAC role: The Defence Acquisition Council is not only the apex body for capital procurement but also approves broad acquisition priorities before tenders are issued.
• L1 principle: In defence procurement, the lowest compliant bidder is called L1, but the contract is awarded only after technical and staff evaluation.
• ToT meaning: Transfer of Technology is a key tool used to convert foreign defence know-how into domestic manufacturing capability.
• MRO importance: Maintenance, Repair, and Overhaul facilities are increasingly used to reduce lifecycle dependence on foreign suppliers.
• Make-II advantage: Make-II projects are industry-funded, but successful prototypes can still receive assured procurement, making them attractive for startups and MSMEs.
• Leasing use-case: Leasing is especially useful for non-combat support assets where rapid availability matters more than ownership.