FOREIGN COMPANIES HIT IN INDIA’S NEW PROCUREMENT POLICY
By Bulbul Singh
04 Nov 09. In what could be a setback to overseas defence companies,
India has made changes in its defence procurement law under which selected bids will be sent only to Indian defence companies, as against the earlier practice of inviting only overseas defence companies. The new Procurement Policy has created confusion amongst overseas defence companies who wish to operate in the estimated $50 billion weapons procurement market over the next five years.
Starting November 1, 2009, only Indian companies will be invited for selected purchases of weapons and equipment under a new category called ‘Buy and Make (Indian)’ as compared to an earlier practice of inviting only overseas defence companies in the ‘Buy and Make’ category.
The new category is contained in a document, Defence Procurement Procedures 2009 (DPP-2009). An Indian defence ministry official explained that if a project is selected by India’s top defence procurement agency called Defence Acquisition Council to be categorized as ‘Buy and Make (Indian)’, Indian firms, both state owned and private, will play a lead role in negotiating and obtaining technology and co-production arrangements with the foreign Original Equipment Manufacturer (OEMs). As such, the RFP will be issued to the Indian firms and not to the foreign Original Equipment Manufacturer (OEM).
Indian firms identified to have requisite technical and financial
capabilities would be required to submit project proposals indicating
detailed roadmap for development and production of the items over its
life cycle. They will also be required to spell out the proposed
production arrangement with the foreign OEM along with the content of
the Transfer of Technology. The product so manufactured and
supplied by the Indian company must have 50% indigenous content.
Before the new law, defence acquisitions covered under the ‘Buy & Make’ category meant purchase from foreign vendors followed by licensed production of indigenous manufacture in India.
Acquisitions covered under the ‘Buy’ category mean an outright
purchase of equipment which is further divided into ‘Buy (Indian)’ and ‘Buy (global)’. ‘Buy (Indian)’ would mean Indian vendors only and ‘Global’ would mean foreign as well as Indian vendors. However ‘Buy (Indian)’ must have at least a minimum of 30 per cent of indigenous content if the systems are being integrated by an Indian vendor.
Acquisitions covered under the ‘Make’ category include high technology complex systems to be designed developed and produced at home.
The further division of ‘Buy & Make’ category into ‘Buy & Make (Indian)’ category, where only Indian vendors will be invited to compete will shrink the defence market to overseas defence companies.
However, senior serving defence officials say that the new category will limit the availability of quality weaponry and equipment as only Indian companies will be allowed. The officials said that the move will lead to purchase of lower quality products as the Indian defence companies still lag behind in advanced defence technologies.
Moreover, lobbying by Indian defence companies can result in categorization of certain items as only for ‘Buy and Make (Indian)’ category.
Indian defence ministry officials however argue that the purpose
of the new ‘Buy & Make (Indian )’ category will result in greater participation of Indian defence companies into Joint Ventures with overseas defence companies. However, the past record of joint ventures is not very encouraging as no big ticket Joint Venture has been formed so far, except for the Information Technology sector.
A senior Indian Army officer said, “It is very likely that by drawing a new category, Indian defence forces may be forced to buy weaponry and equipment produced by DRDO and Ordnance Factories Board, which, on the whole, are not the best choice.