India to Unveil New Defence Production Policy

India Defence Online, New Delhi– India’s new Defence Production Policy (DPP) which will take the domestic defence industry into the new era of self-reliance and indigenisation has been released this week. The draft of the new DPP was approved in December last year by the Defence Acquisition Council (DAC) headed by Defence Minister AK Anthony.

The draft DPP indicates that the Indian government has decided that preference will be given to indigenous design, development and manufacture of defence equipment. The new policy will apply to long-term needs such as equipment required over 10 years into the future and a robust defence industrial base will be developed for self-reliance. The industrial base will harness the potential of private sector for design, development and manufacture of defence equipment. In the case of strategic and critical technologies, the draft DPP stresses the need to be self-reliant.

The DPP 2011 also has a new offset policy that accepts a key request of foreign as well as Indian vendors in the aviation and homeland security sectors by expanding the existing list of products in the offset category to include internal security and civil aircraft. Till now, it was restricted since the firms making a particular product had to have localisation of the same. The new offset policy has been expanded to include civil aerospace, internal security and training within the sphere of eligible products and services for the discharge of offset obligations.

The DPP 2011 has made several attempts to speed-up the existing procurement procedures, facilitate absorption of offsets and introduce industry friendly procedures. The participation in fast track procedures has been made more convenient for the industry by providing an additional grace period of 30 days for submission of technical/commercial offer and removing the penalty of blacklisting for non performance. The new DPP has also taken measures to cut down procurement time.  In case a RFP is retracted, the original Acceptance of Necessity (AON) will now remain valid provided the subsequent RFP is issued within one year, thus removing the need to go back to the DAC a second time.

The new DPP also touches upon the issue of technology transfer from foreign firms. The DPP states that the Defence Research and Development Organisation (DRDO) will be a necessary party for assistance in identification, evaluation and absorption of the technology. The DPP adds that only in case of critical technologies in which indigenous industries do not have capabilities and in cases where they cannot meet delivery timelines, the foreign technology will be preferred. The defence public sector units and the Ordnance Factory Board will also be expected to strengthen their research and development.

The new warship building policy under the new DPP has also ensured speeding up and monitoring the progress of projects and placing greater accountability on defence shipyard and not insulating them from competition. In the DPP, India has allowed private shipyards to participate in building warships and submarines.

The DPP has also addressed the demand of the Indian industry by making the Exchange Rate Valuation clause applicable for Rupee contracts with Indian vendors in Buy Global cases so that there is protection against currency fluctuation.

However, there is still a faction like the Confederation of Indian Industries (CII) that feels that the new DPP has not really managed to create a level-playing field for the domestic private industry. For instance, there are the “Make” and “Buy and Make Indian” categorisations that were introduced to encourage domestic industry.

However, the procedures under these categorisations are very complicated in their original form and not a single proposal under these categories has fructified. The new DPP should have addressed this situation and simplified the procedure under these categories.