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Thursday, Jul 10, 2008
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Centre revises defence procurement policy

Sandeep Dikshit

NEW DELHI: The Centre on Wednesday revised the defence procurement policy (DPP) to ensure speedier purchases and make the Indian industry a beneficiary as India shops worldwide to strengthen its defence preparedness.

The DPP 2008 will govern purchases worth nearly $100 billion over the next decade.

The Defence Acquisition Council headed by Defence Minister A.K. Antony cleared the DPP 2008 which includes provisions for increasing transparency. But the biggest change is including the new concept of banking in the offset clause which makes it mandatory for foreign companies selling equipment over Rs. 300 crores to source part of their requirement from the country.

“The DPP will be operative from August 1 and incorporates the cumulative experience of the services and the Ministry of Defence over the last two years,” said government sources. In 2006, the government unveiled a new defence purchase policy to reduce delays and eliminate corruption in vendor selection. It had also promised to revisit the policy after two years.

As Mr. Antony had promised the government has ensured that an altered purchase policy would be in place by August.

“The policy has been suitably changed to pave the way for speedy procurement of weapons systems and platforms in a transparent manner,” added the sources.

The DPP 2008 marks a significant departure from the existing process by including the concept of banking of offsets — a company executing an order will be able to transfer the value of the work done in India to fulfil the offset requirements of another order.

All foreign companies had made this demand though the validity of the banking period sought by them was different.

The government has now fixed it at two years. If a company has sourced some value of one project from India, it can indicate this amount as offsets in another request for proposals (RFP) if it comes within two years of the earlier work.

Simultaneously, the government is also planning to beef up the Directorate of Offsets with representations from the services, Defence Finance wing and technical organisations. India has already inked a few defence contracts which include offsets.

But a bigger department is required to cope with mega contracts in the pipeline. For instance, the Rs. 42,000 crore tender for fighter aircraft has a 50 per cent requirement. Thus to ensure that Rs. 21,000 crore of the requirement originates from India would require greater vigilance to check if the winning company is cutting corners.

The purchase policy also promises a greater push to indigenisation. This would be done by promoting wider representation on panels doing technical evaluation of indigenously designed military platforms.

The Defence Ministry has noted the predilection of some services for off-the-shelf imported military systems rather than indigenously designed ones.

The presence of defence researchers and others on the evaluating panel will ensure that conclusions of trials and evaluations are not made in a narrow single-service environment.

The DPP 2008 also seeks to involve Indian companies in designing and producing hard-to-obtain equipment, allow closure of dead-end projects and ensure that the cascading effect of local taxes does not make the companies’ products costlier than foreign equipment.

The revised DPP has provisions that incorporate suggestions by the Central Vigilance Commission which had scrutinised some defence deals in the past. The focus will be on transparency.

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