October 14, 2014

Defence Procurement Procedure likely to be simplified further

The government is looking at refining the Defence Procurement Procedure, 2013. The procedure, which has been reviewed six times since 2006, is expected to be simplified further. According to sources in the defence ministry, “The review is done based on the feedback that we get from the industry. And new clauses are added and the existing are simplified further to enable the vendors to understand the procedure.”
The DPP 2013, which has been under review for a year now, could further simplify the make (Indian) clause. “Changes could be made in the make (Indian) procedure as the exercise to identify the steps required for simplification of the clause has not been completed yet. This clause is intended to promote design, development and manufacture of futuristic weapons and equipment,” sources said.
Air Force chief Arup Raha, while expressing concern over delays in its projects, said it was the government’s responsibility to provide whatever was necessary as “Indian Air Force is India’s air force not my air force”. However, hailing the Narendra Modi government, which he said “meant business”, Raha expressed hope that under it all the processes would be reviewed so that a much faster system of greater accountability can be put in place.
“Every project, be it acquisition or design development, is taking longer than it ideally should. We have lost time lines. Time overrun is much more than it should have been,” Raha said.
In DPP 2013, apart from other amendments, MoD had accorded a higher preference explicitly to the “preferred categorisation” in the following order: (1) buy (Indian); (2) buy & make (Indian); (3) make (Indian); (4) buy & make with transfer of technology (ToT) and (5) buy (global).
The Buy & Make (Indian) procedure was already simplified by doing away with the requirement of short-listing the vendors through the Project Appraisal Committee while reducing the validity of the acceptance of necessity (AoN) from two years to one year with a stipulation to freeze the service qualitative requirements before the accord of the AoN, permitting comprehensive consultations with the industry.
Exchange rate variation (ERV) could be included in the amended DPP. Last year, private sector companies in defence made a presentation to the MoD for protection against foreign ERV, a benefit that defence public sector undertakings (DPSUs) have always enjoyed. Accepting the plea, MoD had approached the finance ministry to approve ERV protection for the private sector.
 According to private sector companies, given

that defence contracts run 5-10 years from signing to conclusion, a significant degree of ERV volatility is almost inevitable. FICCI has suggested that all bidders, including DPSUs, submit their commercial bids on a multi-currency format, with imported components quoted in forex and components sourced in India quoted in rupees. Since 2006, foreign vendors and private Indian companies have been submitting multi-currency bids. But DPSUs bid entirely in rupees while separately indicating the forex component of the bid.
When a foreign company bids for an Indian defence contract, it quotes prices in its own or other, popular, internationally-traded currencies like dollars or euros. When an Indian company bids for a contract, it quotes prices in rupees. In a situation where both a foreign company and an Indian company are bidding, changes (like depreciation) in the value of the rupee do not affect the bid of the foreign company, but affect the offer of the Indian company, since the value and buying power of the rupee goes down. The DPP-2006 and subsequent revisions mandate that a DPSU winning a contract would enjoy ERV protection on the forex content that it had indicated in its bid.
 - financialexpress

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