Monday, March 21, 2011


Feb 2011
Neelam Mathews

With the recent release of the Defence Procurement
Procedures 2011 (DPP 2011) document, Defence Minister
A.K. Antony reiterated that the intent of the revised
policy was to expand India’s defence industrial base, encourage
indigenous production and reduce imports. “The
changes aim at simplification of procedures, speeding up
procurement and enhanced benefits to the Indian defence
industry. Keeping in view the strategic importance of the
ship building sector… Our singular objective is to provide
a level-playing field to the public sector units, shipyards
and private sector, as well as promote indigenization”,
Antony said.

With over 65% of India’s defence equipment having
been acquired from the former Soviet Union with no commitment
to life cycle costs or offsets, over the years, efforts
have been made to introduce a series of changes to the procurement
policy framework with the main aim of including
offsets and to give Indian industry a boost.

There are contradictions in the provision of India’s defence
procurement procedures, with the industry divided
in its views. Confusion reins in the arena of foreign direct
investment, intellectual property and how work can be valued
as in the case of research and development expenditures.

“The government periodically reviews its DPP with
a major focus towards developing sustainable industry in
India,” said Minister of State for Defence M.M Pallam Raju

Major OEMs have shown concern that offsets need to
be de-linked from defence and widened to include areas
such as homeland security, where Indian industry has
yet to come of age. Recently, their woes were heard when
DPP 2011 was announced and it was stated that defence
offsets could now be linked to civil aviation and internal

While this clause at present applies only to projects
awarded after January 2011, it is believed
this may be extended to larger
projects such as the MMRC, a programme
that will require over $5 billion in offsets alone. Yet not all are
happy with the new DPP. “This decision defeats the purpose of building
the defence manufacturing industry in India. Now is the time to invest in
the industry as a decade from now, all procurements will be made,” says a
defence manufacturer.

Internal Security products that can be tapped for offsets include
arms and ammunition, protective equipment
for security personnel including body
armour and helmets, armoured, mine
and bullet proof vehicles, riot control
equipment and protective gear. Other
systems include equipment for surveillance
including handheld devices and unmanned aerial vehicles, night
vision devices, navigation and communications
equipment, assault platforms,detection devices, training aids
including simulators.

Civil aerospace products permitted
for offsets include all types of fixed
wing as well as rotary wing aircraft
including airframes, aero engines, aircraft
components and avionics. Aircraft
design and engineering services,
technical publications, raw material
and semi-finished goods and flying
training and technical training institutions,
the government says that this
will help the development of the civil
aviation industry.

A major change in DPP 2011 is that
the section on “Ship Building” has
been comprehensively revised to include
guidelines for shipbuilding on
competitive basis to promote indigenization
for the induction of ships, submarines and small craft for the
Indian Navy and Coast Guard. Besides
clearly articulating the stepby-step acquisition process, various
clauses for strengthening of contracting
mechanisms, linking payments tostages of construction
for ships/small 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,” said an MoD

India’s first ever Defence Production
Policy (DPrP) was also released recently,
but it needs a more focussed approach
- it is an eight page documents
containing 16 points – and claims that
it is creating the conditions conducive
for the private industries to play an
active role to achieve the objective of
increased indigenous defence development
and production. “DPrP will act as
a catalyst to enhance potential of Small
and Medium Enterprises (SMEs) for
indigenisation and also for broadening
the defence research and development
base of the country,” said Defence Minister

While there is nothing new in the
DPrP that the government has not said
before, it focuses on the intent that defence
products developed in the country
will be given a preference since they
will provide a competitive edge over
offers from international companies. In
the end policy statements are only one
part of the issue, India, if it wants to develop
its defence industry, both public and private sector, must move
beyond talk to practical action.

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