Thursday 4 June 2015

Defence Procurement Procedure

Why in news?

Defence Procurement Procedures (DPP) will be revised soon by Ministry of Defence. 

History of DPP

1992 - DPP drafted
2002 - Comprehensive Review
2003, 2005, 2006, 2008, 2011 and 2013 - Revised 
2015 - Hopes of simpler policy with more coherence with Make in India Programme. 

What is Procurement Procedure?

DPP is for Capital Defence procurements i.e. those procurements which involved huge lumpsum money and not minor purchases. 

Latest Version: DPP 2013

Defence acquisitions categorised into following:
  1. Buy Indian/Global: Outright purchase from Indian/foreign manufacturers; 
  2. Buy & Make and Buy & Make (Indian): Buying from foreign/Indian vendor followed by Transfer of Technology and production in India 
  3. Make (Indian): Development of the product in India from scratch. 
    1. DPP 2013 for the first time listed buying from within the country as priority.

Offset Policy
  • Let us understand the word OFFSET with an example of Amitabh Bacchan and Aamir Khan. 
    • If Amitabh Bacchan gives 10 apples to Aamir Khan and he eats them. Next day Amitabh Bacchan wants those apples back. But Aamir Khan says that I can not return you apples as neither I have the apples as I have eaten them nor I have money to buy you 10 new apples. 
    • Now, Amitabh Bacchan asks Aamir Khan to clean his utensils for 10 days in lieu (in place of) returning the apples. 
    • If Aamir Khan agrees to the above request of Amitabh Bacchan he would have offset his liability of 10 apples.
    • In DPP foreign companies come and make use of Indian market. Originally Indian market should have benefitted Indian manufacturers than foreigners. But it benefitted foreigners as Indian manufacturer is not yet prepared to make. Moreover when we manufacture something there is advancement in technology because of research involved in manufacturing of new things. India also looses in this advancement of technology if foreign buyer comes to India as they keep the researched work with themselves. So to OFFSET THESE LOSSES we do the following.
  • If contract >300 Crore in  ‘Buy’ and ‘Buy and Make’ categories (1 and 2 above) then offsetting has to be done and this is done in following manner as per rules:
    • Vendor(seller of defence equipment) has to invest 30% (of the cost of the contract) in Indian industry so as to have indigenous content in the product. 
  • Success of offset policy
    • Not so successful and proof is that we are still in nascent state and state-of-the-art technology has not yet been absorbed by the industry
      • Foreign vendors have been discharging offsets that do not build the capability of Indian industry. 
  • Government says offset should be in terms of percentage of technology gained than money

At present Middlemen are not allowed in existing DPP
  • Agents/representatives/consultants/middlemen - None is allowed. 
  • Defence Minister Manohar Parrikar has articulated a place for “representatives” in defence procurement within a legal framework.
Blacklisting: Another big issue which will be looked into it. 
  • 2012 - 6 companies were blacklisted in 2012 in light of the OFB scam
    • Badly effected the artillery modernisation programme. 


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