Although it has chosen so far to ignore calls on some of the more extreme suggestions seen over the past few years, the Indian Defence Ministry has today confirmed a range of reforms within a formal Defence Procurement Policy (DPP) and that appear as being primarily intended to improve the indigenous level of defence based procurement.
India is an important markets for mature western nations including the UK and France and companies engaging in or that are maybe already well invested in India may wish to take note of certain of the issues raised in the DPP. I not a specialist on matters related to defence procurement in India and indeed, I have never visited this massive country as yet. Thus my main intention here is merely to inform as opposed to attempting to provide much in the way of additional comment. My belief though is that despite what is being put forward within the DPP that UK companies remain well placed to benefit in India albeit that as in the past, patience remains the most important asset that one can possess.
The DPP-2016 announcement was conveniently timed by the Indian authorities to coincide with the opening of DefExpo in Goa. It had been widely anticipated and was expected to confirm a process of wide ranging reforms as to how India’s private sector defence industrial sector will in future be required to be more fully engaged and to participate in future domestic based defence procurement. There are as far as I can see few surprises although one notes a suggestion that this may not be the complete document yet and that some of what may have been left out will emerge over the coming months. The basis for this last comment is that the Indian Defence Minister, Manohar Parrikar has I believe also said that that certain concerns of foreign companies that had been expressed in the past would now be addressed through this [DPP] policy over the next three or four months.
Speaking at the inauguration of the four-day DefExpo, an exhibition of land and naval systems being held at Betul-Naqueri village which I understand is about fifty kilometers from Panaji, Defence Minister Parrikar said that the new policy was intended to give top priority to fast procurement and to focus on indigenous design and development and lay more emphasis on pushing the ‘Make in India’ agenda that is part of the target of achieving a large scale indigenous defence industry network. “The new DDP”, he said “would help India reduce its dependency on foreign countries” by sourcing defence equipment in-country in the years to come either as a partnership with foreign companies or through the indigenous industrial base.
This is apparently the first time that DefExpo has been held in Goa and press reports suggest that this bi-annual event is enjoying participation of no fewer than 1,055 companies from 47 countries and that 224 delegations from 48 countries are expected to pass through the four day event.
There was however confirmation that the FDI (Foreign Direct Investment) limit will remain at 49 per cent through the automatic route and that a higher percentage can and will be considered on what are regarded as special cases.
The DPP has as far as I can see made great effort to recognise the importance that small and medium sized enterprises can play in the sector and there is a stated intention to provide a further [financial] boost to SME’s.
In his address Manohar Parrikar said that self-reliance is “a major corner-stone on which the military capability of any nation must rest”. I agree entirely and how nice it would be to hear similar words being expressed on the same subject by our government here in the UK! Indeed, the India DPP has gone out of its way to confirm that it is of “utmost importance that the concept of ‘Make in India’ should remain the focal point of the defence acquisition policy/procedure” – a point that I would add appears to be almost the opposite of what the last attempt at creating a Defence Procurement Policy in Britain (National Security Through Technology) succeeded in achieving and that we may regard as having been quite the opposite in terms of intention to what the Indian Government has announced today.
The DPP confirmed that under what is being called an Indian (Indigenous) Designed, Developed and Manufactured (IDDM) category the intention is that indigenous procurement will be regarded as the first preference basis for all acquisitions starting from April this year which is when the newly announced DPP will go into full effect.
The IDDM category refers to the preferential procurement process that will be given to Indian vendors of products that have been indigenously designed, developed and manufactured and that have a minimum of 40 per cent indigenous content and also, to products that have 60 per cent of (indigenous production) of it on a cost basis when a capability being acquired has not been designed or developed indigenously.
My understanding is that offset liability for foreign vendors will make it compulsory for companies to invest, or to source, at least 30 per cent of the contract value in India. While offset had previously been compulsory for all contracts of more than Rs. 300 crore (note: crore is a unit of Indian numbering equal to ten million) in value my understanding is that the minimum contract value has now been increased to Rs. 2,000 crore.
For that expert groups had drawn up a recommendation on nominating ‘strategic partners’ from among private companies for major defence projects.
However, I am reliably informed that the DPP has omitted the seventh chapter titled ‘Strategic Partners and Partnerships’, which had been intended to provide details of the government strategy aimed at giving preferential treatment to major private sector players in significantly large projects.
A further commentary in the UK Defence series will follow shortly.
CHW (London – 29th March 2016)
Howard Wheeldon FRAeS