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Defence Ministry’s draft procurement policy

Date: 21 March 2020 Tags: Miscellaneous

Issue

The Defence Ministry has released a draft of its new procurement policy, which, for the first time, allows for lease of defence equipment, pushes for more indigenous content and brings in after-sales support under the contract of capital acquisition.

 

Background

A high-level review committee headed by DG Acquisition and created in August 2019 had recommended these changes based on the recommendations of stakeholders, including from the private industry.

 

Details

  • The main aim of the policy is to make India self-reliant and a global manufacturing hub. The government is constantly striving to formulate policies to empower the private industry including MSMEs in order to develop the eco-system for indigenous defence production.

  • The draft Defence Procurement Procedure (DPP) 2020 aims to increase indigenous manufacturing and expedite procurement of defence equipment.

  • The defence industry of India is a strategically important sector having huge potential for growth. It needs to be the catalyst for India’s economic growth and realisation of global ambitions.

                Highlights

  • The Draft Defence Procurement Procedure 2020 will increase the indigenous content for various categories of equipment by 10 per cent. It has also introduced a new category of Buy Global-Manufacture in India, under which a minimum of 50 per cent indigenous content on cost basis of total contract value will be necessary.

  • Only the minimum necessary will be bought from abroad while the balance quantities will be manufactured in India and manufacturing will happen in India.

  • It will also have a ‘price variation clause’ for any project worth Rs 1,000 crore or more, with a delivery schedule of 60 months or more to cater for the escalation of price from the last date of submission of bids till the finalisation of the negotiations.

  • The leasing model, included for the first time, will help substitute huge initial capital outlays with periodical rental payments and will be useful for equipment like transport fleets, trainers etc that are not used in warfare.

  • Another chapter in the draft is for procurement of software and systems-related projects because in projects like these obsolescence is very fast due to rapid changes in technology and flexibility in the procurement process is required to keep up with the technology.

The other significant addition is the Post Contract Management, which will provide clear guidelines for issues arising during the contract period as typically defence contracts last for a long period. The capital acquisition contract will also include support for five years beyond the warranty period.

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