The new DAP, which comes into force from October 1, seeks to empower the domestic defence industry through the `Make in India’ initiative with the eventual aim of turning India into a global manufacturing hub, said defence minister Rajnath Singh.
MoD officials, in turn, admitted the 15-year-old offsets policy, under which at least 30% of the total contract value had to be ploughed back into India as re-investments, “loaded extra costs” into contracts while failing to bring critical military technology into the country. Foreign companies are known to increase the contract price by around 8-10% to cater for their offsets commitments, they said.
“So, offsets will not be applicable in government-to-government, IGA (inter-governmental agreement) and ab initio single-vendor deals in the future,” said director general (acquisitions) Apurva Chandra.
This is significant in light of the latest CAG report, tabled in Parliament last week, which had slammed French firms Dassault Aviation and MBDA for their failure so far to fulfil offsets obligations in offering “high technology” to India under the Rs 59,000 crore Rafale fighter deal inked in September 2016.
The CAG had called for a major overhaul of the entire offsets policy, stressing that it had “scarcely met the objectives” of inducting advanced technology, attracting FDI and bolstering the domestic defence industrial base.
As per the new DAP, offsets will continue in deals that have a multi-vendor competition and bidding. “The offsets guidelines have been revised, wherein preference will be given to manufacture of complete defence products instead of just components in India. Various multipliers have been added to incentivize discharge of offsets,” said Chandra.
The other big takeaway from the new DAP was the introduction of the new provision on leasing, which will allow the armed forces to quickly hire transport planes, mid-air refueling aircraft, helicopters, simulators and the like for urgent operational requirements without huge initial costs and paying for their upkeep.
The DAP also places greater emphasis on “time-bound” defence procurement processes and “faster decision-making” through the setting up of a project management unit, framing of realistic and verifiable GSQRs (general staff qualitative requirements) and overhauling of the long-winded trial and testing procedures. With the armed forces framing impractical technical parameters in their hunt for advanced weapons, the time-consuming search for them often ends up nowhere.
The DAP also provides for single-stage accord of AoN (acceptance of necessity) in all cases up to Rs 500 crore to cut delays, while incorporating new provisions on information and communication technologies, post-contract management and acquisition of systems designed and developed by DRDO, Ordnance Factory Board and defence PSUs.
With the recent decision to hike the FDI limit to 74% from the existing 49% in the defence production sector through the automatic clearance route, the DAP incorporates a new category called ‘Buy (Global – Manufacture in India). “This will encourage foreign companies to set up manufacturing/maintenance entities through their subsidiaries in India, while enabling requisite protections to the domestic industry,” said an official.
