DEFENCE ACQUISITION PROCEDURE 2020

OCT 6

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WHY IN NEWS:

  • The new Defence Acquisition Procedure 2020 has come into effect from October 1, 2020. It seeks to replace the existing Defence Procurement Procedure (DPP) 2016.

BACKGROUND:

  • The first Defence Procurement Procedure (DPP) was promulgated in 2002. Since then it has been revised several times.
  • DPP 2016 was released replacing the previous one based on the recommendations of Dhirendra Singh committee. It focussed on indigenously designed, developed and manufactured weapon systems.
  • It was facing several issues like lack of transparency, inconvenient offset regulations etc.
  • The DAP 2020 contains policies and procedures for procurement and acquisition from the capital budget of the MoD in order to modernise the Armed Forces including the Coast Guard.
  • DAP 2020 has been aligned with the vision of the Government of Atmanirbhar Bharat and empowering Indian domestic industry through Make in India initiative with the ultimate aim of turning India into a global manufacturing hub

SALIENT FEATURES OF DAP 2020

  • Notify a list of weapons or platforms for ban on import:
    • With a view to promote domestic and indigenous industry, the MoD will notify a list of weapons/platforms banned for import.
  • Time Bound Defence Procurement Process and Faster Decision Making:
    • As part of the Defence Reforms announced in the Atmanirbhar Abhiyan, setting up of a Project Management Unit (PMU) has been mandated to support contract management.
    • The PMU will facilitate obtaining advisory and consultancy support in specified areas to streamline acquisition process.
  • Reservation in Categories for Indian Vendors:
    • The categories of Buy (Indian-IDDM), Make I, Make II, Production Agency in Design & Development, OFB/DPSU and SP model will be exclusively reserved for Indian Vendors meeting the criteria of Ownership and Control by resident Indian Citizens with FDI not more than 49%.
    • This reservation will provide exclusivity in participation to domestic Indian industry.
  • Enhancement of Indigenous Content:
    • Indigenous Military Material:
      • Promoting use of indigenous military material with provisions for examination of platforms and other equipment/ systems and reward for vendors for using indigenous raw material.
    • Indigenous Software:
      • Provision for exploring options for operating base applications like Fire  Control  System,  Radars,  Encryption, Communications etc on indigenous software in Buy (Indian- IDDM) & Buy (Indian) cases has been included.
  • Rationalisation of trial and testing procedures:
    • DAP 2020 emphasises the need to conduct trials with an objective to nurture competition based on the principles of transparency, fairness and equal opportunities to all and not as a process of elimination.
    • DAP focuses on testing equipment based on its employability
    • Avoid duplication of trials and waiver will be granted based on Certificates of Conformance
    • No repetition of inspections will be done especially during acceptance of equipment. Third Party Inspections will also be carried out.
    • Scope of Trials will be restricted to physical evaluation of core operational parameters

What are defence offsets?

In simplest terms, the offset is an obligation by an international player to boost India’s domestic defence industry if India is buying defence equipment from it. Since defence contracts are costly, the government wants part of that money either to benefit the Indian industry, or to allow the country to gain in terms of technology.

The Comptroller and Auditor General (CAG) defined offsets as a “mechanism generally established with the triple objectives of:

(a)Partially compensating for a significant outflow of a buyer country’s resources in a large purchase of foreign goods

(b) Facilitating induction of technology and

(c)Adding capacities and capabilities of domestic industry”.

  • Offsets:
    • The Offset guidelines have been revised, wherein preference will be given to manufacture of complete defence products over components and various multipliers have been added to give incentivisation in discharge of Offsets.
    • DAP 2020 removed the clause for offsets if the equipment is being bought either through deals or agreements between two countries or inter-governmental agreements (IGA) or through an ab initio single-vendor deal.
    • For example, the deal to buy 36 Rafale fighter jets, signed between the Indian and French governments in 2016, was an IGA.
    • CAG, in its recent report has been critical of the offset policy due its ineffectiveness
    • Government’s position is that doing away with the offsets can bring down the costs in defence contracts.
  • Ensure timely payment to vendors:
    • Suitable provisions like speedy processing of documents have been included to ensure timely payment to vendors.
    • Payments to Indian industry have been aligned with foreign industry.
  • FDI in Defence Manufacturing:
    • With the new Foreign Direct Investment policy announced,  DAP 2020 has adequately included provisions to encourage FDI to establish manufacturing hubs both for import substitution and exports while protecting interests of Indian domestic industry
  • Ease of Doing Business:
    • One of the key focus areas of the DAP 2020 was to implement ‘Ease of Doing Business’ with emphasis on simplification, delegation and making the process industry friendly
  • Cost cutting:
    • Leasing has been introduced as a new category for acquisition in addition to the existing ‘Buy’ and ‘Make’ categories so that periodical rental payments are made instead of huge capital investment.
    • This will be useful for military equipment not used in actual warfare like transport fleets, trainers, simulators, among others.

ISSUES/CHALLENGES:

  • Offset guidelines diluted:
    • Offset policy is now confined only to contracts involving outright purchase of materiel from foreign vendors through competitive bidding.
    • Government-to-government deals that account for a large percentage of overseas equipment and platform procurements, including acquisitions from the US under its Foreign Military Sales (FMS) scheme, have been excluded from the offsets purview.
    • It will not be surprising if governments of other supplier countries, under pressure from their own industry, also formulate FMS-like procedure, so that they too get exemption from discharging offsets for Indian purchases
  • Not enough incentive to foreign investment:
    • Considering that all foreign investment will now be subject to prior-approval scrutiny, and post-approval review entirely at the government’s discretion, on nebulous grounds of national security, foreign investors may not be as keen to invest in India
  • Import ban may weaken inflow of FDI:
    • Inflow of FDI will be further weakened by the embargo imposed on the import of 101 defence items that will come into effect over five years December 2020 onwards
    • This embargo is likely to be extended to more items
  • Gap in budgetary allocation:
    • There is deficit of 1 lakh crore between what the armed forces had demanded for the current fiscal and what they received
    • DAP will facilitate acquisition, but cannot enable it unless there is adequate financial backing for all the acquisition programmes
  • Ambitious target of indigenisation may deter quality:
    • Ambitious indigenisation percentages have been assigned to each category under DAP 2020.
    • Indian industry which drives this endeavour, however, baulks at making the necessary investment in absence of adequate return on investment and economy of scale.
    • The quality of indigenisation is therefore often the first casualty.
  • May lead to huge backlog of committed liabilities:
    • The promulgated timelines for processing a contract have rarely been met affecting planning considerations, and budgetary allocations resulting in a huge backlog of committed liabilities which is directly affecting modernisation plans of all the three services.

CONCLUSION:

  • Considering the emerging geo-political challenges and unresolved border disputes, India needs to carry out much-needed defence reforms. DAP 2020 is the one of the many needed defence reforms. But its true success will be relied on the way its implemented.

PRACTICE QUESTION:

Q. How far the implementation of Defence Acquisition Procedure 2020 will improve India’s self-reliance in defence sector?