The Defence Procurement Policy 2016 made public this week is a step forward in increasing the participation of India’s private sector in military manufacturing. It replaces the last DPP unveiled in 2013, and has several recommendations for improving indigenous procurement.
The DPP, the governing manual for all defence procurement, was part of a set of military reforms undertaken to address the many deficiencies noticed during the 1999 Kargil war. Since the first one in 2002, the DPP has been revised periodically. The new policy places the highest preference to a newly incorporated procurement class called ‘Buy Indian-IDDM’, with IDDM denoting Indigenous Designed Developed and Manufactured. This category refers to procurement from an Indian vendor, products that are indigenously designed, developed and manufactured with a minimum of 40 per cent local content, or products having 60 per cent indigenous content if not designed and developed within the country.
The policy has also liberalised the threshold for offset liabilities for foreign vendors — now the obligation to invest at least 30 per cent of the contract value in India will kick in at Rs.2,000 crore, a significant increase from the previous Rs.300-crore mark. The policy lays stress on micro, small and medium enterprises (MSMEs), and on “Make in India”. A 10 per cent weightage has been introduced for superior technology, instead of selecting the lowest bidder only in financial terms.
DPP 2016, however, falls far short of the expectations raised by the Narendra Modi government’s ambitious “Make in India” push that aims to transform the country into a global manufacturing hub.
India is the world’s largest importer of defence equipment, and indigenising production is key to such a plan. The DPP is noticeable for the absence of Chapter VII, titled ‘Strategic Partners and Partnerships’, which the Defence Minister said would be notified separately. Under Strategic Partnerships, select Indian private companies were to be given preferential status in major defence projects. The inability of the Centre to finalise a credible policy to radically increase indigenous military manufacturing is a sure sign that India will remain heavily dependent on defence imports.
Given the country’s robust financial growth, one of its greatest leveraging points is the annual spend on procurement. India has all the necessary prerequisites for a robust military-industrial complex: a diverse private sector, a large base of engineering institutes, and a growing defence budget. The fact that India faces a combination of security threats from both state and non-state actors is an obvious reason why it needs to be self-reliant in military equipment.
There is another important reason why India needs an indigenous military-industrial complex: it will significantly reduce the potential for corruption in military procurement. However, the new procurement policy does not inspire hope that domestic defence production will grow sufficiently. It may not be just an irony that the policy has been released as India hosts yet another Defexpo event, in Goa, where global vendors are hawking their war machines to a technologically famished Indian military.