MoD discusses proposed defence procurement guidelines with industry - Broadsword by Ajai Shukla - Strategy. Economics. Defence.

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Tuesday 2 June 2020

MoD discusses proposed defence procurement guidelines with industry

Purchases below Rs 50 crore to be reserved for MSMEs, FDI cap to remain at 74%

By Ajai Shukla
Business Standard, 2nd June 20

The defence ministry’s procurement chief, Apurva Chandra, has announced that, to promote indigenization, defence procurements worth less than Rs 50 crore per year would be reserved for micro, small and medium enterprises (MSMEs). 

Addressing an industry gathering in New Delhi on the draft Defence Procurement Procedure of 2020 (DPP-2020), that was placed in the public domain for comments in March, Chandra said the foreign direct investment hike to 74 per cent proposed in DPP-2020 would not be hiked to 100 per cent as the proposed hike adequately protected the concerns of foreign industry. 

“I think it is a big step that we have moved from 49 per cent to 74 per cent and we should celebrate that rather than pitching for 100 per cent as it does not make much of a difference, since you (i.e. foreign industry) have direct control,” said Chandra. 

In a statement that MSMEs are welcoming, Chandra said: “We are contemplating to reserve any procurement less than Rs 50 crore per year for MSMEs within India, if such products are available within the country.” 

On the question of making procurement faster and simpler, Chandra said that DPP 2020 aimed at reducing the burden of bank guarantees, and at making trial and quality acceptance procedures more transparent. 

“These are the changes that may not be visible upfront but those who are operating the DPP and actually participating in the contracts will feel the difference once this is approved and gets operationalized,” he promised. 

With the draft DPP-2020 proposing to increase the mandatory indigenous content in defence platforms the military was acquiring, Chandra sought to allay concerns about how indigenous content would be measured. “With the support of industry and what they had suggested, we have come out with a new methodology on how indigenous content is to be measured and that is a very objective sort of criteria which has been suggested by the industry itself,” said Chandra. 

Admitting this was a contentious issue, he added: “So it will be much easier to measure indigenous content or come at a conclusion as to how much is the indigenous content in future because till now it has been a sort of grey area.” 

The draft DPP-2020 released in March contained the promise that the final version would, for the first time, include chapters on post-contract management and on the procurement of information and communications technology (ICT) software and systems. Suggesting that procurement officials are still struggling with the new chapters, Chandra said: “New chapters on post-contract management… and a new chapter on procurement of ICT software and systems where probably a much faster mode of procurement compared to the regular mode of procurement in the DPP is required and that will be coming out.”

Another new aspect to DPP-2020 is the introduction of leasing, rather than purchase of military platforms and equipment. “Leasing will be a totally new area and, 
considering budget constraints, that will probably open a new area of acquisition for the armed forces which will develop over the next few years,” he said. 

The benefits of leasing, rather than outright purchase, have become evident from the navy’s leasing of a nuclear attack submarine, INS Chakra, from Russia. Instead of paying a huge lump sum for the Chakra, the Indian Navy is making relatively modest annual payments that allow it to operate the vessel for a decade. Now, the defence ministry hopes to extend leasing to a range of equipment such as air transport fleets, trainers aircraft and simulators.

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