New Procurement Policy for defence related purchasing and Indigenisation of defence production

• The Government has taken several policy initiatives in the past few years under 'Make in India' program and brought in reforms to encourage indigenous design, development and manufacture of defense equipment in the country.

Initiatives for Indigenisation

• It includes priority to procurement of capital items from domestic sources under the Defense Acquisition Procedure (DAP)-2020.
• Announcement of 18 major defense platforms for industry led design & development.
• Notification of two ‘Positive Indigenisation Lists’ of total 209 items of Services and two ‘Positive Indigenisation Lists’ of 2851 items and 107 Line Replaceable Units (LRUs) of Defense Public Sector Undertakings(DPSUs).
• There would be an embargo on the import beyond the timelines indicated against them.
• Simplification of Industrial licensing process with longer validity period.
• Liberalization of FDI policy allowing 74% FDI under automatic route.
• Simplification of Make Procedure.
• Launch of Innovations for Defense Excellence (iDEX) scheme involving start-ups & Micro, Small and Medium Enterprises (MSMEs).
• Implementation of Public Procurement (Preference to Make in India) Order 2017.
• Launch of an indigenization portal namely SRIJAN to facilitate indigenisation by Indian Industry including MSMEs.
• Reforms in Offset policy with thrust on attracting investment and Transfer of Technology for Defense manufacturing by assigning higher multipliers.
• Establishment of two Defense Industrial Corridors, one each in Uttar Pradesh and Tamil Nadu.

New Procurement policy

The Ministry of Defence, after stakeholder consultations with Industry Associations, Think Tanks, Services and other government agencies, promulgated Defence Acquisition Procedure (DAP)-2020.

Salient features of DAP-2020 promoting ‘Atma Nirbhar Bharat’ and ‘Make in India

• Notification of positive indigenization lists in respect of weapons/platforms -

• to ensure equipment as mentioned in the list is not procured.

• Highest priority to procurement under Buy (Indian-Indigenous Design, Development & Manufacture[IDDM]) category.
• Indigenisation of imported spares through the Make-III process introduced with the aim of enhancing self-reliance through import substitution.
• Reservation for MSMEs and small shipyards for orders up to Rs 100 crore/year.
• Increased Indigenous Content (IC) in various categories of procurement under DAP-2020.
• Reservation for Indian Vendors with ownership and control by resident Indians in procurement under the categories:

• Buy (Indian-IDDM)
• Make-I & Make-II and Strategic Partnership (SP) Model of DAP-2020.

• Introduction of a new category of Buy (Global-Manufacture in India) to give a push to the ‘Make in India’ initiative of the Government.

Amendments in DAP-2020

• Any import of defense equipment/sourcing from Foreign industry, irrespective of value and type of acquisition, should only be an exception requiring specific approval of DAC/Raksha Mantri.
• To reduce the financial burden on the Indian Industry Integrity Pact, Bank Guarantee (IPBG) has been dispensed.
• Earnest Money Deposit (EMD) has been introduced as a bid security and Pre-Contract Integrity Pact (PCIP) cover until the conclusion of the contract.
• Post conclusion of the contract, Performance and Warranty Bank Guarantee (PWBG) to provide the PCIP cover.
• Procedure for acquisition through iDEX and Make-II has been simplified with compression of timelines.

Exam Track

Prelims Takeaway

• New Procurement policy
• Defense Acquisition Procedure (DAP)-2020.
• Amendments in DAP-2020

Mains Takeaway

Q. Discuss how New procurement policy for defence acquisition is the benchmark decision to promote Make in India.