Defence Procurement Procedure – 2020

  • On 20th March, 2020, Defence Ministry unveiled the draft Defence Procurement Procedure (DPP) 2020 that aims at further increasing indigenous manufacturing and reducing timelines for procurement of defence equipment.
  • DPP will come into effect from April 01, 2020 and would remain in force till 31 March 2025.

Background

  • Dpp-2020, along with several other such innovative measures were part the Draft finalized by a high-level committee headed by DG Acquisition, Ministry of Defence that was set up in August 2019.
  • It is to be noted that the first DPP was promulgated in 2002 and has been revised a number of times with last revision in the year 29016.

Major Changes Proposed in New DPP

Higher Indigenous Content

  • It 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.

Introduction of New Category Buy (Global- Manufacture in India)

  • It has been introduced with minimum 50% 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.
  • Foreign vendors' products that have a minimum of 50 per cent indigenous content will come under this new category.
  • This would be in preference to the ‘Buy Global’ category as manufacturing will happen in India and jobs will be created in the country.

Leasing Introduced as a New Category

  • Leasing has been introduced for the first time as a new category for acquisition in addition to existing ‘Buy’ & ‘Make’ categories to substitute huge initial capital outlays with periodical rental payments.
  • Leasing is permitted under two categories i.e, Lease (Indian) where Lessor is an Indian entity and is the owner of the assets and Lease (Global) where Lessor is a Global entity.
  • This will be useful for military equipment not used in actual warfare like transport fleets, trainers, simulators, etc.

Product Support

  • The scope and options for Product Support have been widened to include contemporary concepts in vogue, namely Performance Based Logistics (PBL), Life Cycle Support Contract (LCSC), Comprehensive Maintenance Contract (CMC), etc to optimise life cycle support for equipment.
  • The capital acquisition contract would normally also include support for five years beyond the warranty period.

Other Changes

  • Raw Material: Use of raw materials, special alloys and software incentivised as use of indigenous raw material is a very important aspect of ‘Make in India’ and Indian Companies are world leaders in software.
  • Single Vendor: Assurance of procurement on a single vendor basis from Aero Engine manufacturing unit and chips from FAB manufacturing units established in the country.
  • Procurement of Software and Systems: A new Chapter is introduced for procurement of software and systems related projects as in such projects, obsolescence is very fast due to rapid changes in technology and flexibility in the procurement process is required to keep up with the technology.
  • Post Contract Management: It has been introduced to facilitate and provide clear guidelines for issues arising during the contract period as typically Defence contracts last for a long period.
  • Reduced Procurement Time: Timelines for procurement reduced by reducing the process for accord of Acceptance of Necessity which would be single stage of projects less than Rs.500 crore and in case of repeat orders.

Impact

  • Removing Bottlenecks: It will help to remove procedural bottlenecks and hasten acquisition; align and standardise the provisions to optimise life cycle support for equipment and simplify policy and procedures to facilitate greater participation of the industry and develop robust Defence industrial base.
  • Boost to Make in India Initiative: The DPP-2020 is aligned with the vision of the government to empower the private industry through the 'Make in India' initiative, with the ultimate aim of turning India into a global manufacturing hub.

Way Forward

  • The defence industry of India is a strategically important sector having huge potential for growth and development.
  • The government is constantly striving to formulate policies to empower the private industry including MSMEs in order to develop the eco-system for indigenous defence production and DPP-2020 is a huge step in order to provide a catalyst for India’s economic growth and realisation of India’s global ambitions.

Source : Civil Services Chronicle Online, March, 2020