DEFENCE PROCUREMENT PROCEDURE, 2020

IN NEWS:

The Ministry of Defence (MoD) released the draft Defence Procurement Procedure (DPP) 2020, to be effective for the next 5 years.

BACKGROUND:

• The Defence Procurement Procedure (DPP) contains processes that needs to be followed to streamline and simplify defence procurement procedures in the country.
• The ultimate objectives of the DPP are timely acquisitions, attaining self-reliance in meeting the security needs of the armed forces, promoting indigenous design, development and manufacture of Defence weapon systems.
• The first DPP was promulgated in 2002. Since then, it was revised on 9 different occasions.  The current one replaces the Defence Procurement Procedure of 2016.
• The draft of DPP 2020 has been prepared by a Review Committee headed by Director General (Acquisition) based on the recommendations of all stakeholders, including private industry.
• It covers all capital acquisitions undertaken by the Union Ministry of Defence, Defence Services and Indian Coast Guard (ICG) both from indigenous sources and import.
• It came into effect on effect on April 1, 2020 and would remain in force till 31 March 2025.

FEATURES:

• Indigenous Content ratio hiked:
  • Draft proposes increasing the Indigenous Content (IC) stipulated in various categories of procurement by about 10% to support the ‘Make in India’ initiative.
  • A simple and realistic methodology has been incorporated for verification of indigenous content for the first time.
• Leasing introduced as a new category:
  • Leasing has been introduced as a new category for acquisition in addition to existing ‘Buy’ & ‘Make’ categories to substitute huge initial capital outlays with periodical rental payments. This will be useful for military equipment not used in actual warfare like transport fleets, trainers, simulators, etc.
  • Leasing is permitted under two categories:
    1. Lease (Indian) where Lessor is an Indian entity and is the owner of the assets
    2. Lease (Global) where Lessor is a Global entity.
• New Category Buy (Global – Manufacture in India) has been introduced with minimum 50 per cent indigenous content on cost basis of total contract value. Only the minimum necessary will be bought from abroad while the balance quantities will be manufactured in India
• New Chapters:
  • Comprehensive Chapter introduced for ‘Make’ to cover procurement from manufacturers in India including start-ups and innovators and from research projects of DRDO
  • New Chapter for Post contract management to facilitate and provide clear guidelines for issues arising during the contract period as typically Defence contracts last for a long period.
  • New Chapter for procurement of software and systems related projects where obsolescence is very fast due to rapid changes in technology and flexibility in the procurement process is required to keep up with the technology.
• Timelines for procurement reduced by easing the approval process for projects less than Rs.500 crore and in case of repeat orders.
• To facilitate greater participation of the Indian industry and develop a robust defence industrial base, use of indigenous raw materials, special alloys and software has been incentivized.
• A “price variation clause” has been introduced that will be applicable to all cases where the total cost of contract is more than Rs 1,000 crore and the delivery schedule exceeds 60 months.
• There is also long-term product support — which would be three to five years after the warranty period is over.
• Field Evaluation Trials to be conducted by specialized trial wings and the objective of trials will be to nurture competition rather than elimination for minor deficiencies.

EXPECTED OUTCOMES:

• Push for indigenization: By hiking the domestic content requirement and creating a new category in acquisition, the policy seeks to enhance the development of domestic defence industries, especially startups. This will in turn boost the Make in India initiative, thereby help generate investments and employment in the country.   
• Reduction in expenditure: Leasing provides means to possess and operate the asset without owning it and is useful to substitute huge initial capital outlays with periodical rental payments.
• Faster acquisition of defence equipment: DPP-2020 proposes that field evaluation trials will henceforth be conducted by specialized trial wings. This will help nurture competition rather than elimination (of a product) for minor deficiencies and thereby faster acquisitions.
• Ease of doing business: Well defined guidelines, easing approval processes, use of IT based tools, post-contract management facilities and “price variation clause” seeks to attract industries and investors and enhance the ease of doing business atmosphere in the country.   
• Better upkeeping: By ensuring services beyond the warranty period, the policy seeks to ensure that the procurements are well maintained in the long run.
• Ensure transparency: Defence acquisitions have always been an avenue for corruption India. This policy, much like its predecessors, seeks to ensures that the procurement processes are fair and public resources are optimally used.  

WAY FORWARD:

• In the wake of new threats such as cyber war and to provide greater momentum to the modernization of the armed forces, it is essential for India to reform its existing process of defence acquisitions.
• The most efficient way to do this is by strengthening the defence manufacturing base. The DPP 2020 is in line with this idea. However, it should be supplemented by developments in other sectors such as defence research, defence expenditure and defence planning.