April’2016
MoD, in absolute harmony with the Inaugural ceremony of the DEFEXPO 2016, released the DPP, has created enough hype to justify its formulation or so we would like to believe. For the first time, since it evolved, the DPP was preceded by an Experts committee and then a task force that took a deep dive into the aspect of Strategic Partners. The minister, has been leading from the front, providing the much needed leadership to the bureaucracy. For the first time the MoD got a first hand account of an entrepreneur, voice of a small enterprise, all of this and more, finding its way into the defence quagmire. The minister has provided a voice to the small enterprises, the entrepreneurs, start ups and many others who never had one, despite the numerous associations that exist. In many a first, some of these concerns have been addressed.
Lets begin our analysis with the “Preamble”. This DPP incorporates a Preamble, just like the one enshrined in the Constitution. The idea is noble, it is expected to provide the acquisition executive with the wisdom to choose the “spirit” from the “letter”. The acquisition executive is many a time, “Prisoner to Procedure”; since they are most rigid when it comes to the DPP, for fear of enquiries and an unknown, that may haunt them, down the line. The preamble is expected to open the acquisition executive’s mind to a more rational application of the procedures in the interest of the acquisition at hand. Should there be a doubt in application of any of the procedural paragraphs, the acquisition executive is expected to refer to the “Preamble”, just as how the judiciary would. The question is, does the said preamble indeed incorporate a chosen text, with the ability to provide overarching clarity to the procedures enshrined therein? The fine print somehow falls short of expectations. The Preamble sadly begins on a negative note, “Defence acquisition is not a standard open market commercial form of procurement, and has certain unique features such as supplier constraints,…..”, and so on. Well, we could have begun on a positive note, after all, so much effort has gone into making of this landmark DPP. The Preamble definitely lacks the ability to stand out as a Preamble, with an ability to provide overarching support to the execution executive. A path changing inclusion in the DPP is the introduction of a new category called, “Buy IDDM”. DPP places importance on “Indigenous Design”, Development and Manufacture. Although these attributes, were present in a subtle manner, inherent in the “Buy Indian” category, they have now got their pride of place. This is actually the essential ingredient to “Make in India”, philosophy and will receive more AON awards, as the year begins from April the 01st 2016. This is thanks to the minister’s personal intervention. The categorisation demands that if the design is indigenous then a manufacturing indigenous content(IC) of 40% would suffice to pass muster and else a 60% IC. Does this not beat fundamental logic? A homegrown design would most probably rely on indigenous supply chain resulting in high IC, whereas, a foreign design would have low IC, after all, conform to a foreign supply chain attitude.
However, paradoxically, the IDDM category demands just the reverse. Is this demand based on realistic assessment of the domestic industry or was it a fancy tool to impress upon a theory devoid of logic? It would be a challenge for the industry to reconcile to the situation.
Does the Preamble clarify, if the spirit of the DPP is to place an emphasis on indigenous design? For example, if there are two solutions for a program, one based on indigenous design and the other on a foreign design, will the MoD encourage a competition between the two? Will not the foreign companies exploit this and push for their design in the systems of Indian Armed Forces? There is a third challenge here, ie, there is no difference between IDDM with indigenous design and the next higher category, viz, “Buy Indian”. Both of them demand a 40% indigenous content, never mind the lack of design or incorporation of it. How will the MoD, ascertain that the design is indigenous, well we would be entering into a new variety of quick sand. While recognising the importance of indigenous design and according it the pride of place right on top of the categorisation priorities, MoD has shied away from a complete and total lifting of the abeyance order placed on design services amongst others, in offsets. Despite many representations, this ban, was lifted only partially, by the present government. If the government truly believes in promoting indigenous design, then a case exists for a total lifting of the Abeyance order. I would like to see all upgrades being covered under either Buy Indian or at best Buy and Make Indian categories(para 15 needs a suitable amendment). That could encourage domestic industry to make investments ahead of time.
Everyone in the system need not do everything, it should rather be teamwork, like a relay race, the baton must pass from one stage to another. There is a tendency in the MoD for each successive stage to re-invent the wheel, this tendency must be curbed, this DPP has not brought in this clarity. The RFI process must essentially be a commitment for purchase. Many times the industry is encouraged to make investment basis the RFI and hence the MoD must draw up the RFI for a reason and the reason is procurement by the Forces. Sadly, the formulation is otherwise, reads as follows, “The RFI would be published on MoD and SHQ websites for seeking relevant information, on specific procurement schemes. The issue of RFI is not a commitment for procurement”. How do we expect the industry to have a show of hands when the RFI is not serious enough to lead to a commitment of procurement? In so far as SQRs are concerned, the balance of decision making must shift to the Armed Forces. Let not the necessity, to make generic SQRs, not deprive the Armed Forces of a system they require. I like the concept of “Essential Parameters A”, “Essential Parameters B”, and “Enhanced Parameters”. While the concept of broad based QRs seems to apply only to the “Essential Parameters A”, the Forces can use the enhanced parameters to get more out of a system, since no system is designed for exclusive use of the Indian Armed Forces. Also by an intelligent use of “Essential Parameters B”, the Forces can get more even as the production begins. This concept is an intelligent insertion by the MoD, based on the leadership provided by the Minister himself. MoD has expressed a willingness to incorporate technical experts at this stage of the planning process, a very welcome move, indeed. There is an effort to cut down the time in the planning process, by reducing the AON to RFP time to 6 months/1 year for either a Buy Indian/Buy and Make Indian programme. This may be cosmetic, since I believe that the planning process may as well take a little longer, cutting down of time is more necessary in the execution process. Offsets have been pegged at a threshold value of INR 2000 Crores, which comes with a mixed feeling.
While the industry would have liked to have the offsets continued at the present threshold of INR 300 crores or even lesser, to enable more offsets business; it appears the MoD is probably not able to effectively manage the offsets, given the other stakeholders/players introduced in the system, such as the CGDA for an audit. A new insertion in this DPP is the design and development by DRDO/DPSUs at para 71 of Chapter-I. It would have been a great idea to also include private industry at this stage. The confidence reposed in the private industry by the MoD would have been reflective by such an insertion. This therefore leads to a conflict at para 101, that reads, “ … Cases which are being undertaken by DRDO/DPSUs/OFB/Indian private industry as design and development projects, would not fall in the category of Single Vendor cases…”. Therefore the MoD does visualise cases that are undertaken by private industry also, besides the Make I and Make II category of cases. A great deal of credit is to be given to the MoD for the far sighted “MAKE” procedure, with incorporation of MAKE category 1 and Make 2.
Forward looking, industry friendly, ability to give large advances to the domestic industry for undertaking “Make” programs, will provide an unprecedented boost to the indigenous industry. A definite boost for MSMEs is clearly visible in this category, once again a pioneering move by the Defence Minister to encourage the small industry sector. The minister has addressed the “Defence Industrial Base”, and some of the concerns of the small scale units that are pegged at the base of the development pyramid. If India lives in villages, the Industry lives in MSMEs. 90% funding in Make 1 category by the government and a 20% advance are key highlights. The fine print is out. Devil is in the details, let us hope this time when the DPP is released in its full version, may be The Angel is in the details.
