Defence Procurement Procedure 2016

The Union Government had recently unveiled Defence Procurement Procedure 2016 (DPP 2016). It will replace the Defence Procurement Procedure 2013 (DPP 2013). This procedure has been framed on the basis of Dhirendra Singh Committee recommendations. It was appointed in May 2015, to review DPP-2013.

The new procedure would cover acquisition of all capital military equipment, systems and platforms. Under this, there are mainly three categories of Capital Acquisition Schemes as follows:

Buy scheme

Outright purchase of equipment and procurements under this scheme are further categorized as Buy (Indian- IDDM), Buy (Indian), and Buy (Global). IDDM stands for Indigenously Designed Developed and Manufactured.

Buy and Make scheme

The procurements are categorized as Buy and Make and Buy and Make (Indian).

Make Scheme

It seeks developing long-term indigenous defence capabilities and procurements. It empowers Defence Acquisition Council (DAC) to take a fast-track route in order to acquire weapons, which were limited to the armed forces till now.

Priority wise, the procurement of defence equipment can be arranged as (1) Buy (India-IDDM) (2) Buy (Indian) (3) Buy and Make (Indian) (4) Buy and Make (5) Buy (Global). Thus, the highest priority has been given to Buy (India-IDDM) which seeks to boost indigenous production and procurements under it should 40% sourced locally in terms of the content. It will promote domestic manufacturing, including government funding R&D and recognition of the Micro, Small and Medium Enterprises (MSMEs) in technology development.

Implications for Make in India

Defence sector is prominent among the 25 sectors covered under the ‘Make in India’ initiative. Though the DPP calls for increasing FDI in defence from current 49% (automatic route), the Buy (Indian-IDDM) emphasised on defence procurements from within India. IDDM stands for Indigenous Designed Developed and Manufactured. This category refers to the procurement be made from an Indian vendor of either products that have been indigenously designed, developed and manufactured with a minimum of 40 per cent indigenous content or products having 60 per cent of it on a cost basis but not designed and developed indigenously.

How the new procedure differs from DPP-2013?

The DPP-2013 explicitly promoted manufacture in India with hierarchical prioritisation for manufacturing in India. It gave top priority to the “Buy (Indian)” category; followed by “Buy and Make (Indian)” and “Make” categories, which mandate high levels of indigenisation. Lower priority was given to “Buy (Global)” and “Buy and Make” categories, which allow a greater role to foreign production. However, the new DPP 2016 gives impetus to IDDM category explicitly boosting Indian design and development.

Under IDDM category, besides being designed and developed in India, at least 40 per cent of a product must be manufactured in India for it to qualify for the IDDM category. Also there have been changes bought about in the “Make” procedure, which involves the government funding 80 per cent of the design and development cost of indigenous weapons platforms, with vendors paying 20 per cent.

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