Elevation of Smt Nirmala Sitharaman to the post of the Defence Minister is a master Stroke in Modi’s strategy. Defence industry is the major ailment of the defence sector suffers in its road to progress. The Synergy between the Ministry of External Affairs, Ministry of Commerce and industry and the Defence Ministry would ensure harmony In International relationships and a show of strength on the military diplomacy. For a democracy it is essential to optimise international relationships with an element of military diplomacy and that’s exactly what the Modi government is doing. We cannot but appreciate the choice of the Defence Minister at this point in time when many programs are held up and the newly announced strategic partnerships policy is ailing. The path to success will be pinned on the initiatives from Nirmala Sitharaman to push the strategic partnerships towards logical conclusion and conclude the contracts before October 2018. Major programs and inviting of foreign direct investment into the Defence sector is one of the key areas that the Prime Minister was looking at. This can be achieved if at all, only by Nirmala Sitharaman. We are in for good times and interesting times. – Col K V Kuber
The much awaited DPP 2016 just released by the MoD in absolute harmony with the Inaugural ceremony of the DEFEXPO 2016, 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 that made recommendations for the new DPP and then a task force that took a deep dive into one of the recommendations of the experts committee. The minister this time has been leading from the front, providing the much needed leadership to the bureaucracy and for the first time the MoD gets to hear 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”; MoD officials dealing with acquisition are often called as “Prisoners to Procedures”, 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. Well, the preamble is expected to address some of these concerns and 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”, for a clarification and then follow the preamble, just like what the judiciary would. The question is, if the said preamble has a chosen text, with the ability to provide overarching clarity to the procedures enshrined therein. A great deal of effort is required in choice of words and the formulation of the “Preamble”. 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. MoD may do well to take corrective actions in a more robust formulation of the Preamble.
A path changing inclusion in the DPP is the introduction of a new category called, “Buy IDDM”. For the first time, since its inception in 2002, the DPP places importance on “indigenous design”, development and manufacture. Although these attributes such as design, development and manufacture, were present in a subtle manner in the DPP 2013, and inherent in the “Buy Indian” category, they have now got their pride of place in the DPP. 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 extremely good and I believe the minister personally intervened for incorporation of such a category. So what then are the implications? The categorisation believes that if the design is indigenous then a manufacturing indigenous content of 40% would suffice to pass muster and should the design not be indigenous then the manufacturing content required is 60%. Well, this beats basic logic. Lets see how.
If the design is home-grown, then the design would most probably rely on indigenous supply chain and chances of indigenous content are high, whereas, if the design is foreign then chances of having higher indigenous content are low, after all, any foreign design would 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, in the former, ascertain that the design is indigenous, considering that every design may not be patented(are we likely to open a Pandora’s box here by asking for patent filings etc?), 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. The abeyance order that was issued on a knee jerk reaction based on an alleged wrong doing by an IOP(still at large), the entire services industry in India was debarred from offsets discharge as eligible IOPs. Despite many representations, this ban, thanks to the rationale application of logic and reason, was lifted, albeit, partially, by the present governemnt. If the government truly believes in promoting indigenous design, then a case exists for a total lifting of the Abeyance order. The entire DPP must be in conformance with the spirit and the spirit needs to be established in the Preamble.
DPP 2016 must have a flavour for all upgrades and MRO type of activity. It would be a treat to see that all upgrades are necessarily under “Buy Indian” category, at best under “Buy and Make Indian”. The type of investments being made by the Indian industry is pretty encouraging, like Reliance in Mehan, VEM in their new integration facility in Andhra and so many more. Indian industry is now ready to take on all type of upgrades and so the DPP may come out clear on this aspect. However, the formulation in the DPP is not exactly that, it reads, “Para 15 ….Such cases could be categorised under any of the categories as given in the paragraphs 6 – 11 (Chapter I)…”. I would like to see all upgrades being covered under either Buy Indian or at best Buy and Make Indian categories. That could encourage domestic industry to make investments ahead of time. Although, I believe, the spirit of the DPP was to get all upgrades in house.
The DPP was expected to clearly differentiate the planning process from the execution process. While the HQ IDS would coordinate the complete planning process till accord of AON, the Acquisition wing would take on from there and issue the RFP and proceed till signature of the contract. This clarity is essential to avoid duplication of work. Everyone in the system need not do everything, it should 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, broad based SQRs and SQRs that can generate a multi vendor situation, 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 to have a deliberate examination at this stage of the planning process, a very welcome move, exhibiting the open-mindedness of the GoI.
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. However, considering that the 300 crore limit was fixed more than a decade ago and that more and more programs are likely to go the domestic route, Indian industry is likely to be engaged more effectively by the MoD in the indigenous categorisation, such a decision may have been taken. Also, 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. For effective monitoring, may be the number of programs will reduce by increasing the threshold. This seems to be a smart move.
A new insertion in this DPP is the design and development by DRDP/DPSUs/OFB at para 71 of Chapter 1. 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. Therefore para 71 may demand a small inclusion of private industry as well.
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 attacked the “Defence Industrial Base”, and addressed 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. A reimbursement of cost of the remainder 10%, should the MoD not procure after a successful development, is another key highlight, once again unprecedented, what a welcome move!! Provision of test facilities for industry and other key benefits accruing from such a move are very encouraging, this will boost exports of defence items from the country.
The fine print is out. Devil is in the details, let us hope this time when we see the DPP on 28th of March, may be The Angel is in the details.
 Defence Procurement Procedures
 DEFEXPO 2016 for the first time out of New Delhi, held in Goa from 28th till 31st of March 2016
 Buy IDDM demands a lower(40%) IC(indigenous Content) overriding on indigenous design and a (60% IC) on a non-indigenous dsign.
 The Theory being, “I will demand a higher IC since the design is not indigenous”, after all I must get some compensation for a non-indigenous design
 They only need to comply with a higher IC in manufacturing
 MoD OM No 9(42)/2013/Offsets dated 23/05/2013 placed on their website on mod.nic.in/DDP/DOMW
 Indian Offset Partner
 HQ Integrated Defence Staff, responsible for coordination of procurement
 Acquisition baton
 USD 300 million approximately
 USD 45 million approximately