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Will engaging agents make defence procurement transparent? Key facts to know about the new norms

The government has finally unveiled the new Defence Procurement Procedure (DPP), the manual that lays down the processes to purchase defence equipment. The new norms were approved by the Defence Acquisition Council, at a meet chaired by defence minister Manohar Parrikar on Monday.

Here are all the key details about the new policy:

What are the key changes in the procedure?

There are mainly three changes: It has increased the contract threshold for applying offset condition from Rs 300 crore to Rs 2,000 crore for offsets; it has tweaked the L1 policy; and it seeks to give a big to 'Make in India' initiative.

 Will engaging agents make defence procurement transparent? Key facts to know about the new norms

Manohar Parrikar. PTI

The present offset norm stipulates that if a foreign company wins a defence contract worth Rs 300 crore, it has to undertake manufacture of 30 percent of that value in India. The new policy has increased the contract threshold that kicks off the offset clause to Rs 2000 crore.

L1 refers to lowest bidding vendor. Under the new move, bidders will get 10 percent extra weightage if a system displays better qualities than required.

If the thrust is on Make in India, why did the government change the norms governing offset clause?

According to the minister, offset clause is resulting in an increase in cost of products by 14-18 percent. Also there are doubts about the amount of capacity of Indian companies to take up defence contracts. "We currently have signed offsets worth $5 billion and another $8 billion is in pipeline. We may not be able to absorb all of this," Parrikar said explaining why the threshold has been increased.

How will the domestic sector benefit?

The boost for indigenous production of defence equipment is another major step in the policy. It has a clause to fund Indian private entities in Research and Development aimed at encouraging more local development. "Medium and small scale industries will get opportunities," the minister has said, adding that the Department of Defence Production will fund up to 90 per cent of the R&D. Remaining 10 per cent of the development cost would be reimbursed, if the RFP for the equipment developed is not issued within 24 months from the date of successful development of prototype," he said.

Apart from this, altogether a new category called the 'IDDM' or 'Indigenously Designed, Developed and Manufactured' platforms has been created. This category, with at least 40 per cent indigenous content, will get top priority and will be first to be chosen for tenders.

There are five categories in the DPP: Buy (Indian); Buy & Make (Indian); Make; Buy & Make; and Buy (Global). In a press release on 18 December, the government said the hierarchy of the categorization "clearly marks a shift towards indigenous equipment". "Department of Defence Production with its OFs and DPSUs has been a major instrument to foster Indigenization," it said. OFs are ordnance factories and DPSUs are defence public sector units. India has 41 OFs and 9 DPSUs with 45 production units in the country.

Also Make (Indian) category has been divided into three parts. One is 90 per cent government funded while the second is industry funded and third reserved for medium and small enterprises.

How else is the new procedure different from the UPA's?

According to a report in The Times of India, the ministry plans come out with a nuanced and liberal blacklisting policy. Taking a dig at former Defence Minister A K Antony, Parrikar said his predecessor did not keep companies on blacklist to protect his "so called image". The blacklisting policy will be different from the defence procurement policy and will be issued separately. He said that only those companies that have been cleared by CBI will be taken off the blacklist.

The UPA had an indiscriminate blacklisting policy that negatively impacted the modernisation attempts of the defence forces, the ToI has quoted the minister as saying.

Also, there are plans to allow foreign arms companies to engage "authorised Indian representatives", the ToI report says. Making clear how the agents will be different from middlemen, the minister said: "The representative (or agent) should be paid a reasonable fee...he should not be a commission agent or be paid depending on the cost of a deal or the success or failure of the deal."

Now the billion dollar question is will the open engagement of agents end the corruption and ring in much-needed transparency in the defence procurement? To get a clear answer, we need to wait and watch.

Data by Kishor Kadam. With inputs from PTI

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Updated Date: Jan 12, 2016 13:03:36 IST