India to fine tune defence purchase procedures


New Delhi : India is to fine tune its defence purchase procedures to bring them in line with international best practices and to enable the domestic industry effectively absorb the cutting edge technologies that will now become available to this country.

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“The idea is to fine tune procedures, make them more transparent and make it easy (for foreign suppliers) to address their obligations under the contracts they sign with the Indian defence forces,” the secretary (Defence Production), Pradeep Kumar, told reporters here Tuesday.

“It is an evolving process. We are learning from the feedback we are getting,” he added.

The new Defence Procurement Procedure (DPP) is likely to be announced in April, two years after it was first enunciated.

The DPP-2006 had, for the first time, laid down in detail the measures to be followed in future for purchasing military hardware. It contained three critical elements: an offsets clause, no single-vendor purchases, and compulsory transfer of technology (ToT) in all big-ticket deals.

Of these, the offsets clause has become a matter of major concern.

Under the offsets clause, 30 percent of all defence deals worth over Rs.3 billion has to be reinvested in India’s defence industry.

A number of foreign defence manufacturers say this clause is restrictive as it narrows down their options. They say they would like the scope widened to enable them to invest in other sectors as well.

They also point out that the clause is subjective, as in the case of an Indian Air Force (IAF) tender for 126 combat jets floated last September, the offsets provision has been arbitrarily raised to 50 percent.

Kumar indicated that many of these issues were being addressed.

“The choice of where to invest the offsets obligation would be left to the foreign vendor. As for the percentage of offsets, this would depend on the size of the contract,” he pointed out.

The defence ministry estimates that Indian industry would have to absorb Rs.500 billion ($12 billion) worth of offsets in the next five years as the armed forces aggressively pursue their modernisation drive.

“I am very confident Indian industry, both in the public and private sectors, will be able to absorb this,” Kumar maintained.

A committee headed by former finance secretary N.S. Sisodia had studied the suggestions received on reworking the DPP and had also visited some countries to study the systems in place there.

The committee is understood to have submitted its report to the defence ministry, which is now studying the document.

Sisodia, who now heads the think tank Institute of Defence Studies and Analyses (IDSA), has also served as secretary (defence production).