Defence Procurement, Change in Rules, IDDM etc

1. TOPIC: Defence Procurement
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By: Harveer Singh

2. Issues in Defence Procurement for India
 Black Listing of the Firms due to
Corruption Cases.
 Technology Shortcomings
 Opaque Procurement process due to
sensitive technology
 Lack of Market price signalling leading to
corruption
 Lack of Indigenous research, design and
development.
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 India remains the world’s largest importer of arms,
importing 14% of global imports of weaponry
between 2011-2015.
 India’s primary supplies are Russia, Israel, France,
and the United States.
 The government of India is looking to reduce
dependency on foreign arms manufacturers and to
catalyze domestic manufacturing capabilities.
 The ‘Make in India’ initiative is seen as a launch pad
for the structural and regulatory changes needed to
boost India’s defence-industrial base.
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4. Dhirendra Singh Committee
(May 2015)
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5. Dhirendra Singh Committee..contd..
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 The committee proposed three models for cooperation
with the private sector: Strategic Partnerships,
Developmental Partnerships and Competitive
Partnerships.
 Within this model, there would be six groups of Strategic
Partnerships: aircraft, warships, armored vehicles,
complex weapons, surveillance, and critical materials.
 In order to prevent “conglomerate monopoly,” the
Committee suggests identifying one or two private sector
companies for each of the six Partnerships to limit
competition.
 The committee also recommended ending the practice of
single bid rejections.
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6. Dhirendra Singh Recommends: # Strategic
Partnership Model
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 Strategic is like RUR (Raksha Udhyog
Ratna)
 Only one SP should be permitted in one
segment.
 Based on the recommendations of
Kelkar Committee
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7. Dhirendra Singh Committee..contd..
Emphasis on Greater Indigenisation
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 Make in India’ should not “become
assemble in India with no IPR [intellectual
property rights] and design control and
thereby perpetuating our dependence on
the foreign suppliers.”
 To guard against such a situation, the
experts group has emphasised on
progressively increasing the indigenisation
content
 Single window clearances and faster
processes to obtain industrial licencesHARVEERSIR for GSSCORE

8. Dhirendra Singh Committee..contd..
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 Industry Friendly Procurement :
Streamlining the acquisition process and
structure so as to create more
opportunities.
 It also recommended for Conducive
Financial Framework.
 Calls for a level playing field for the
private sector by way of bank
guarantees, payment terms, taxes and
duties.
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9. 9
Slide Intentionally Left Blank
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10. ##Raksha Udyog Ratna (RUR) concept
 While making their demand to Kelkar Committee
(2004-06) Industry wanted be treated at par with the
public sector as regards receipt of imported
technology, fulfilment of offset obligations and joint
development with Defence Research and
Development Organisation.
 Govt gave it a go ahead with the concept of Raksha
Utpadan Ratnas (RUR)
 The Selection Committee of RUR was constituted
in May 2006 under Mr Prabir Sengupta.
Committee gave its recommendations and the
report is under review 
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 the ‘strategic partnership model’
(SPM) with the Indian private sector
for the platforms, weapons, networks
and materials is significant.
 This will enable private companies to
front-end and manage complex
defence projects at par with DPSUs.
 It calls for a focus on private sector
R&D.
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12. 12
Slide Intentionally Left Blank
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13. VK Aatre Task Force 2016
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 Related to Strategic Partnership
 Dhirendra Singh Committee had also
suggested the setting up of a Task
Force to “lay down the criteria in
details for selection of SPs
 VK Aatre Task Force deals with the
detailed criteria for selecting Strategic
Partners (SPs)
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14. 10 segments in two groups from which SPs
would be selected
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 for Group-I, the Task Force has suggested the selection
of only one SP in each segment, whereas the number
can go up to two in Group-II segments.
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15. Financial Norms
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 For Group-I
 A consolidated turnover of Rs. 4,000 crore for each of the
previous three years,
 Consolidated capital assets of Rs. 2,000 crore in the last
financial year,
 Consolidated revenue growth of a minimum of five per
cent in at least three of the previous five years.
 For Group-II
 consolidated turnover and capital assets are Rs. 500
crore (last 3 Years) and Rs. 100 crore, respectively.
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16. Other Recommendations
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 technical norms : past performance,
engineering and manufacturing capability,
R &D culture, infrastructure facilities, HR
structure and practices, quality control
system etc.
 a maximum foreign direct investment (FDI)
of 49 per cent.
 an independent regulator and a specialised
wing in the MoD to deal exclusively with
the chosen SPs.
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17. Critique
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 the Task Force has also limited the
participation of SPs to ‘Buy and
Make’ contracts involving transfer of
technology.
 the SPs, in the present scheme of
things, are not substitutes for the
inefficient DPSUs and OFs
SOURCE: IDSA
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18. 18
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19. DPP 2016
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 Aim:To ensure timely procurement of defence
(military) equipment, systems, and platforms
required by the armed forces through optimum
utilization of allocated budgetary resources.
 Scope: It will cover all capital acquisitions
undertaken by the Union Ministry of Defence,
Defence Services and Indian Coast Guard (ICG)
both from indigenous sources and import.
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20. Capital Acquisitions Schemes.
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 Buy scheme: Outright purchase of equipment and
procurements under BUY scheme are
 further categorized as Buy (Indian- IDDM), Buy (Indian), and
Buy (Global).
 IDDM stands for Indigenously Designed Developed and
Manufactured.
 Buy and Make Scheme: The procurements are
categorized as Buy and Make and Buy and Make
(Indian).
 Make category Scheme: It seeks developing long-term
indigenous defence capabilities and procurements.
 It empowers Defence Acquisition Council (DAC) to take a
fast-track route in order to acquire weapons, which were
limited to the armed forces till now.
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 Procurement of defence equipment:
Arranged in decreasing order of
priority are categorized as
 (i) Buy (India-IDDM). (ii) Buy (Indian). (iii)
Buy and Make (Indian). (iv) Buy and
Make. (v) Buy (Global).
 Buy (India-IDDM) seeks to boost
indigenous production.
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22.  Upto 90% Government funding for private
Research & Development (R&D) through
Department of Defence Production.
 Recognition of the Micro, Small and
Medium Enterprises (MSME) as
technology developers.
 Offsetting from 300 crores to 2000 crores.
 ***Offseting push up cost by 16 % for the
suppliers.
 Single BID procurement would now be
considered.
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 SHQ would be owning and would be responsible for
MAKE projects.
 Long term Perspective Plan of 15 Years for “Make”.
 Make-PMU in at all SHQs and Cpast Guard.
 Make projects into two Categories: Make-I (Govt
Funded) and Make-II (Industry Funded)
 Under Make-I: upto 90% Funding by the govt.
 MSMEs first right to undertake prototype of less than
10 crores.
 L-1 T-1 Method for Defence Procurement.
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Thank You 
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 In 2015, the government issued 56 licenses that
authorized multinational companies such as The
Mahindra Group, The Tata Group, and Pipavav to set
up production units.
 The reforms seem to have gained the confidence of
the global defense industry, with $3.5 billion entering
the Indian economy in foreign investments.
 In the first half of the 2015-16 , $64 million of military
equipment purchased- a threefold increase over last
year’s $19 million.
 100% FDI under approval route.
Source: Albright StonebridgeHARVEERSIR for GSSCORE