Tarmak007 -- A bold blog on Indian defence: DPP-2011 aims at providing level-playing field; our mission is to expand defense industrial base: Antony

Thursday, January 13, 2011

DPP-2011 aims at providing level-playing field; our mission is to expand defense industrial base: Antony

(MoD Press Release)
New Delhi: The Defence Minister Shri AK Antony formally released the Defence Procurement Procedure-2011 at a function here today. Presenting the first copy of the document to the Director General Acquisition Shri Vivek Rae, Shri Antony said the intent of the revised Defence Procurement Procedure is to expand our defence industrial base, encourage indigenous defence production and reduce defence imports. “The changes aim at simplification of procedures, speeding up of procurement and enhanced benefits to the Indian defence industry. Keeping in view the strategic importance of the ship building sector, seminal policy changes have been incorporated in the ship building procedure. Our singular objective is to provide a level-playing field to the DPSUs, shipyards and private sector, as well as promote indigenization”, Shri Antony said.
Referring to the changes in the offsets provisions, Shri Antony said ‘our offsets policy is still in the process of evolution, based on our experiences in its implementation in various stages’.
The Defence Procurement Procedure (DPP) is the defining document published by the Ministry of Defence (MoD) to enable decisions regarding defence capital acquisition for the Armed Forces to be made in a cost effective, timely and transparent manner.
The scope of the DPP has been enlarged gradually through amendments in 2003, 2005, 2006, 2008 and 2009.  The categorization of defence procurement proposals also been expanded over the last decade from “ Buy” to “Buy and Make”.  “Buy and Make Indian” and “Make” procedures.  The basic thrust of the enlargement has been to promote development of indigenenous defence industry.  The procedures have also been made more transparent and effective.
DPP-2011 incorporates further refinements based on the experience of the procurement agencies and feedback from the defence industry both India and foreign.  The highlights of the DPP-2011 that will encourage Indian Industry are:
In an effort to ensure that Indian Industry is placed at par with the  Defence Public Sector Undertakings (DPSUS), the Exchange Rate Variation clause has now been made applicable to all Indian vendors when they compete with their foreign counterparts under the “Buy Global” category.
Bank Guarantees under the Integrity Pact have now been linked to the validity of the Commerical Offer submitted by vendors and are, therefore, no longer open ended.
The requirement of furnishing two separate financial bonds for performance of contract and warranty of equipment has now been amalgamated into a single Performance-cum-Warranty Bond.  This will ease the administrative and financial burden on Indian defence manufacturers.
The stringent clause for blacklisting vendors for delay in delivery of equipment, in fast track procurement cases has been removed.  However, the liquidated Damages have been marginally enhanced to ensure greater accountability by vendors.
Shipbuilding Procedure: The existing Chapter-III on “Ship Building” in DPP has been comprehensively revised to include guidelines for shipbuilding on competitive basis.  This revision has been based on inputs provided by all stakeholders, including the shipbuilding industry.  These changes will provide a level playing field to the DPSU Shipyards and Private Sector and promote indigenization for induction of the ships, submarines and yard craft for the Indian Navy and Coast Guard.
The revised procedure lays down the procedure for shipbuilding on competitive basis as well as on nomination basis.  Besides clearly articulating the step by step acquisition process, various clauses for strengthening of the contracting mechanisms, linking payments to stages of construction for ships/yard craft, including modular construction have been included.
The new guidelines will encourage healthy competition between the Private and Public Sector Shipyards and improve delivery indices.  The initiative will enable the Government, to harness national shipbuilding capacities, leading to development of a strong Defence Industrial base and self-reliance in warship building.
Offset Policy Guidelines: The scope of Offset Policy Guidelines is being expanded to include “civil aerospace”, “internal security” and “training” within the ambit of eligible products and services for discharge of offset obligations.  The list of eligible offsets will now cover most aspects of civil aerospace, including aircraft, both fixed wing and rotary, air frames, air engines, aircraft components, avionics, aircraft design and engineering services, aircraft material, technical publications, flying training institutions and technical training institutions.  A wide range of weapons and services for counter terrorism have been included in the list of products under “internal security”. These changes will provide a wider range of offset opportunities to vendors participating in defence procurements and encourage building up of indigenous manufacturing capability in crucial areas.

Defense Production Policy (DPrP)
With a view to achieve substantive self reliance in design, development and production of defence equipment, weapon systems and platforms, the Defence Minister Shri AK Antony unveiled the first ever  Defence Production Policy (DPrP) here today.  The policy also aims at creating conditions conducive for the private industries to play an active role to achieve the objective.  DPrP will act as a catalyst to enhance potential of Small and Medium Enterprises (SMEs) for indigenisation as also for broadening the defence research and development base of the country. 

Releasing the document, Shri Antony said  the Policy aims to achieve maximum synergy among the Armed Forces, DPSUs, OFBs, Indian Industry and Research and Development institutions. The function was attended among others by the Minister of State for Defence Shri MM Pallam Raju,  Defence Secretary, Shri Pradeep Kumar, Secretary Defence Production, Shri Raj Kumar Singh and the DG Acquisition Shri Vivek Rae.  The Defence Production Policy has been prepared after extensive consultations with various stakeholders such as the three Services, Coast Guard, Integrated Defence Staff, DRDO and Indian Industry Associations – CII, FICCI, ASSOCHAM etc.
Under the new Defence Production Policy, coming into force with immediate effect, preference will be given to indigenous design, development and manufacture of defence equipment.  Therefore, wherever the required arms, ammunition and equipment are possible to be made by the Indian industry within the time lines required by the Services, the procurement will be made from the indigenous sources.  Whenever the Indian industry is not in a position to make and deliver the equipments as per the SQRs in the requisite time frame, procurement from foreign sources would be resorted to, as per Defence Procurement Procedure.  While examining procurement cases, the time taken in the procurement and delivery from foreign sources vis-a-vis the time required for making it in the country, along with the urgency and criticality of the requirement, will be examined as per the Defence Procurement Procedure before deciding to proceed with procurement from foreign sources. 
Based on the approved Long Term Integrated Perspective Plan (LTIPP), equipment, weapon system and platforms required ten years and further down the line will by and large be developed within the country.  Sub-systems that are not economically viable or practical to be made within the country may be imported, ensuring their availability at all times.  However, as far as possible, the design and integration of the platforms and systems will be undertaken within the country. 
The government will endeavour to build a robust indigenous defence industrial base by proactively encouraging larger involvement of the Indian private sector in design, development and manufacture of defence equipment.  Towards this end, efforts would be made to progressively identifying and address any issue which impacts or which has potential of impacting the competitiveness of the Indian Defence Industry in comparison to foreign companies. 
To synergise and enhance the national competence in producing state of the art defence product within the price lines and time lines that are globally competitive, all viable approaches such as formation of consortia, joint venture and public private partnerships etc. within the government approved framework will be undertaken.  The academia, research and development institutions as well as technical and scientific organisations of repute will be involved for achieving this objective. 
The government will further simplify the procedure under the “MAKE” category of DPP in such a manner that it enables indigenous design and development of the required defence products by both public and private industries in a faster time frame.
Service Headquarters while laying down the qualitative requirements for defence products will exercise due diligence at all times to keep in view feasibility and practicability of the QRs.  However, it will be ensured that the defence products developed in the country provide a competitive edge to our services vis-a-vis potential adversaries. 
The Defence Production Policy recognises that development of complex systems is a stage process with incremental changes progressing from Mk-1 and Mk-2 and so on.  The stage process will be followed.  However, at every review of such developmental projects by the Defence Production Board or Defence R&D Board, as the case may be, it will be ensured that our equipment, weapons systems and platforms are such that they provide an edge to our forces over our potential adversaries.  In case of delays in the realization of the projects, the corresponding proposal will be processed as per the Defence Procurement Procedure and the option of “BUY” shall be followed for the necessary numbers till indigenous production capability is established where after indigenous systems shall be procured. 
Policies will also be put in place to encourage the DPSUs, OFB and the private sector to strengthen their research and  development wings so that constant upgradation and improvement in systems under manufacture is possible.  The government will set up a separate fund to provide necessary resources to public and private sector including SMEs as well as academic and scientific institutions to support research and development of defence products.  The Defence Minister will hold an annual review of the progress in self reliance that has been achieved during the year.

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