The document summarizes amendments made to India's Defence Procurement Procedure (DPP) in 2011 and their expected effects. Some key amendments include prioritizing indigenous procurement, releasing the long term procurement plan, simplifying procedures for "Make" and "Buy and Make (Indian)" categories, defining indigenous content, and resolving tax issues to boost the domestic defence industry. The amendments aim to increase transparency, expedite procurement, and encourage wider participation of Indian private companies in defence production.

1. DPP 2011 Amendments - EY Analysis

2. DPP 2011 Amendments, April 2013Page 2
DPP amendments and their effect
S No. DPP Amendment EY View
1
Prioritization of Various Categories for
Capital Acquisitions under Defence
Procurement Procedure
Preference for indigenous procurement in the Defence
Production Policy 2011 has now been made a part of DPP
through an amendment that provides for a preferred order of
categorization, with global cases being a choice of last resort.
The order of preference, in decreasing order, shall be: (1) “Buy
(Indian)”; (2) “Buy & Make (Indian)”; (3) “Make”; (4) “Buy & Make
with ToT”; and (5) “Buy (Global)”. Any proposal to select a
particular category must now state reasons for excluding the
higher preferred category/ categories
Categorization used to always take place
at the SCAPCHC stage. At the SCAPCC
stage, which takes place prior to the
SCAPCHC, Indian Pvt. Industry; DPSU’s
and DRDO were given the opportunity to
make presentations on available
indigenous capability. The priority at this
stage was also to provide preference to
the Indian players. However the armed
forces would also have a say as it would
impact their operational prepared-ness.
This prioritization is now out in the open
but is not a real amendment in the true
sense. There is now the possibility that
additional documentation would be
required to categorize programs as Buy/
Buy & Make Global and associated
delays.

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DPP amendments and their effect
S No. DPP Amendment EY View
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Release of Public Version of Long Term
Integrated Perspective Plan (LTIPP)
The DAC has approved the release of a public version of its 15-year
perspective document (LTIPP), outlining the “Technology Perspective
and Capability Roadmap” (TPCR) against LTIPP 2012-2027. The
TPCR will provide useful guidance to the Indian Defence Industry for
boosting its infrastructural capabilities and directing its R&D and
technology investments
This intention of releasing the
LTIPP was first introduced in DPP
2009 (amendment to DPP 2208). It
was also a part of para 9(a) in DPP
2011. However we are yet to see
any such document in the public
domain.
It remains to be seen if the Pvt
sector does make any investments
basis the LTIPP.
3
Maintenance ToT (MToT) no longer through
Nomination
MToT has been hitherto reserved largely for OFB and DPSUs through
the nomination process. A DPP amendment has been approved that
does away with nomination by Department of Defence Production and
facilitates selection of MToT partners by Indian bidders. This measure
is expected to have a positive impact on private sector participation in
maintenance, repairs and overhaul work
As per para 28 of DPP 2011, pvt.
Indian companies were permitted
as valid recipients of MToT.
Through the present amendments
the procedure of nominating a
MToT recipient by the DDP has
been done away with.
We hope that the nomination
process is not allowed for Foreign
bidders as well.

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DPP amendments and their effect
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Advance Consultations for “Make”
Procedure
The DAC has approved an amendment mandating
consultations to begin sufficiently in advance of actual
procurement by Service Head Quarters (SHQs), so that
capital acquisition plans can be translated into national
defence R&D and production plans. In addition, a high-level
Committee has also been constituted for simplification of
“Make” procedures, with a view to unleash the full potential
of this important category
Indian private industry has traditionally raised
the issue of insufficient development time to
produce a prototype. LTIPP will help the
Indian Pvt industry plan as 15 years is a
significant horizon.
Also we believe that the concept of RUR’s has
been done away with and the entire Indian
industry has now been placed at par. Thus a
new selection criteria needs to be looked at for
MAKE programs.
Of the two MAKE programs that were
launched, one has been called off (FICV) and
the other (TCS 2000) is making slow progress.
Any simplification would be welcome
5
Simplification of “Buy & Make (Indian)”
Procedure
The DAC has approved an amendment further simplifying
this complex category. Its procedures have been brought on
par with other categorizations, resulting in faster processing
of cases under this category
We look forward to the ‘simplifications’ that
have been incorporated.
It remains to be seen if the only on-going
project in this category, the Indian Navy’s
Surface Surveillance Radar’ project will benefit
from these ‘ simplifications’

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DPP amendments and their effect
S No. DPP Amendment EY View
6
Clear Definition of Indigenous
Content
Increased indigenization is important for our Armed
Forces, in order that they have access to reliable
supply chains in times of urgent need. Indigenous
content has now been defined in an unambiguous
manner, providing requisite clarity and a common
understanding
DPP 2011 (para 4) has no clear definition of
Indigenous content. For Buy Indian programs the
indigenous content is pegged at a minimum of 30%
and for MAKE it is pegged at 50%. In addition Para
5.9 of the D.O.G. (1st Aug 2012) also mentions the
subject of Value addition. In no place is there a
definition of Indigenous content nor is there a method
shown to calculate the same.
We hope the recent amendment will help shed some
light on these issues. We could also take guidance
from Global methodologies where they use the
Subtraction method and / or the Aggregate method
for calculating the indigenous content.
7
Ensuring faster progress in “Make”
and “Buy & Make (Indian)” cases
The Ministry has a limited number of acquisition
cases under “Make” and “Buy & Make (Indian)”
categories, with an estimated value of Rs. 1,20,000
crore. Instructions have been issued for speedier
conclusion of these cases
We believe that most if not all of these programs are
through the DRDO R&D platform. If the pvt. Sector is
given an opportunity to play its role in productionizing
these technologies, it would prove to be great boon
for India.

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DPP amendments and their effect
S No. DPP Amendment EY View
8
Defence Items List
Indian defence industry was opened up in May
2001 for 100% private sector participation
subject to licensing. The Defence Items List has
been finalized by the Ministry and sent to DIPP
for notification, which will bring required clarity in
the licensing process
The MoD has lately been inundated with IL applications
from the DIPP. This is primarily because under DPP 2006,
IL was mandatory to become an IOP. Under DPP 2008
this condition was removed but still OEM’s insisted that
the IOP have an IL or at least apply for one. Today most
of the programs under execution or advance negotiations
are under these two DPP’s. DPP 2011 permitted IOP’s in
civil aerospace as well and also very clearly replaced the
term Defense with ELIGIBLE vis a vis the Offset
guidelines. Yet many OEM’s still insist that their IOP’s
have an IL or a letter stating that an IL is not required.
Thus the number of IL applications is yet to reduce. Many
business plans have been adversely affected because IL
applications can take up to 2 years to clear and letters
stating that No IL is required could take up to 9-12
months. The MHA also did not provide any security
clearance for IL applicants as there was no pre-set
template for providing such a clearance.
We understand that the Defense items list will be taking
guidance from the WASSENAAR arrangement and that
any item not on the list will not require an IL. We hope the
DIPP issues a notification to this effect very soon.
Also the MHA template has been in the works since last
June and we hope this is released soon.
9
Licensing for Dual Use Items
The Ministry has categorically clarified to DIPP
that dual-use items will not require licensing,
thereby bringing added clarity to the licensing
process
10
Consultations on Security
Guidelines for Indian Defence
Industry
Draft Security Guidelines that will apply to all
licensed defence industries have been circulated
for consultations with various stakeholders. It is
expected that a complete security framework for
Indian private industries participating in defence
cases will be in place in the near future

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DPP amendments and their effect
S No. DPP Amendment EY View
11
Resolution of Tax-related Issues
Resolution of deemed exports status for certain defence
projects and rationalization of tax and duty structures
impinging on the Indian defence industry has been taken
up by the MoD with the Ministry of Finance
This is a welcome step on the part of MoD and if
Ministry of Finance agrees for the same, it may
result in removal of tax anomalies on supplies by
indigenous manufacturers.
Hopefully, Ministry of Finance also work for
removing the differential treatment for private
players viz. a viz. PSUs for e.g. grant of
exemptions from duties on goods manufactured
in India.
12
Funds for MSMEs in the Defence Sector
The Defence Production Policy 2011 requires the setting-
up of a fund to provide necessary resources for
development of defence equipment. In order to ensure
regular supply of funds to MSMEs involved in
manufacturing of defence products, SIDBI has decided to
earmark an amount of Rs. 500 crore for providing loans,
and further, a fund of Rs. 50 crore for equity support out
of “India Opportunities Fund” managed by its subsidiary,
namely, SIDBI Venture Capital Ltd
Para 11 of the Defense Production Policy stated
the creation of a separate fund for SME’s to
support their R&D efforts.
This addition to the DPP with more precise
details should go to great lengths in widening the
indigenous defense industrial base.
One question remains though, whether other
public / private institutions are also permitted to
set-up such funds and if there could possible be
any offset credits for such investments?

8. DPP 2011 Amendments, April 2013Page 8
DPP amendments and their effect
S No. DPP Amendment EY View
13
Efficiency and Transparency in Defence
Procurement
A stipulation to freeze the SQRs before the “Acceptance of
Necessity” (AoN) stage has been accorded, and the validity
of AoN has also been reduced from two years to one year.
These measures are expected to expedite the acquisition
process and increase transparency
This seems like a reaction to the recent VVIP
helicopter scandal.
Previously the user directorate’s used to find
it challenging to release RFP’s within the two
year time-span after receiving the AoN. A
case in example being the P75I program
where the AoN has lapsed twice. It remains to
be seen if the RFP’s can now be issued
within the one year time-span. If it does
happen, we hope the procurement process
speeds up and our forces get quicker access
to world-class platforms.
14
Enhanced Delegation of Financial Powers
The financial powers of Service Chiefs/ DG Coast Guard
have been enhanced from Rs. 50 crore to Rs. 150 crore for
capital acquisition cases
Many small requirements of the end-user
(armed forces) can now be addressed at the
SHQ level itself.
15
Powers to DAC
Approval for all deviations from the Defence Procurement
Procedure will henceforth be sought from the Defence
Acquisition Council instead of the Defence Minister
The RM has devolved his individual powers
and instead placed them with the DAC thus
showing faith in a collegium system of
decision making. We hope this step increases
transparency and at the same time does not
slow down decision making.

9. DPP 2011 Amendments, April 2013Page 9
List of Abbreviations

10. DPP 2011 Amendments, April 2013Page 10
List of Abbreviations
► SCAPCHC - Service Capital Acquisition Plan Categorization Higher Committee
► SCAPCC - Service Capital Acquisition Plan Categorization Committee
► DPSU - Defence Public sector Undertaking
► DRDO - Defence Research and Development Organization
► DAC - Defence Acquisition Council
► DPP - Defence Procurement Procedures
► LTIPP - Long Term Integrated Perspective Plan
► TPCR - Technology Perspective and Capability Roadmap
► MToT - Maintenance Transfer of Technology
► DDP - Department of Defence Production
► SHQ - Service Headquarters
► FICV - Future Infantry Combat Vehicle
► TCS - Tactical Communication System
► DOG - Defence Offset Guidelines
► OEM - Original Equipment manufacturer
► IOP - Indian Offset partner
► MoD - Ministry of Defence
► IL - Industrial License
► MHA - Ministry of Home Affairs
► MSME - Medium Small and Micro Industries
► SIDBI - Small Industries Development Bank of India
► RM - Raksha Mantri

11. Thank You