Not a very bold step for defence procurement

The government of India has recently come up with the revised Defence Procurement Procedure 2016 (DPP) announced by Defence Minister Manohar Parrikar on 11 January. One of the key decisions is a proposal for a new category of acquisition. The nomenclature used is Indigenous Design Development & Manufacturing (IDDM) which is the government’s avatar for Make in India. On surface, it seems very good. On closer inspection, there is nothing Indian about it or indicate a large step forward in defence policy.

As per the new DPP, domestically designed equipment with 40 per cent indigenous components or foreign designed equipment with 60 per cent local components will be considered for buying. Make in India category has been divided into three parts—first 90 per cent government funded, second is industry funded and the third is for micro, small and medium enterprises. The DPP has tremendously increased the offset threshold for foreign contracts from Rs. 300 crore to Rs. 2000 crore with 30 per cent of the contract value to be procured from within India.

All major developed economies have transitioned to being powerhouse economies because of the vast military-industrial complex they possessed. According to renowned futurist Alvin Toffler, every revolution in wealth creation has a parallel revolution in war making. The reverse is equally true. Which means robust defence industrial base would automatically mean a vibrant economy. Some of the greatest inventions & innovations in production are rooted in defence science & research followed by two assembly lines—defence & civilian. Space applications for radio astronomy stemmed from invention of radar in the Second World War. Boeing manufactures some of the best passenger & military aircraft from its factories. European industrial development matured because of rapid advances in military technology.

There are two challenges to India’s private sector becoming an active player in defence R & D and production: the monopoly of defence public sector units (DPSUs) and the favourable terms that foreign suppliers enjoy. DPSUs are well known for their archaic approach. DRDO has not delivered the cutting edge research that was expected of it. It is a well known fact that a majority of DPSUs are merely assembling foreign kits. There is also discrimination in treatment of Indian vendors vis-a-vis the foreign ones. A foreign vendor gets most of his payment on self-certification of project progress while the Indian vendor has to wait for wait for government inspector’s certification. This may result in several months’ delay in payments. The latest DPP may work towards expanding the number of players in the tendering process. But it certainly has not created a level playing field. It seems a given that the upwards of $ 100 billion that India is forecast to spend over the next decade could mostly end up in foreign markets. The government could have come with more radical reforms. DPP is a step forward but much more could have been included.

Guru Aiyar is a research scholar with Takshashila Institution and tweets @guruaiyar