Archive for January, 2016

Revealing that Defence Procurement Procedure of 2016(DPP-2016) is on track to be released in February, Defence Minister Manohar Parrikar termed it a “game-changer”.

“The DPP has already been approved. It is in the final stages where you have to change the appendices and annexures. Maybe next month it will be notified,” Parrikar told a defence industry seminar in Delhi on Thursday.

The new DPP will have overshot Parrikar’s own timeline by a year, but he ascribes that to painstaking consensus building within the ministry.

The defence minister also revealed he was finalising a new, flexible policy to deal with corrupt arms vendors. “I don’t call it blacklisting any more. Probably we will have the discussion today or tomorrow to finalise it. It is now being termed as ‘penal provisions’,” he said.

This would replace automatic blacklisting, and arm the ministry with a range of instruments, including financial penalties and a formula to impose them; short-term banning from defence tenders; and, in extreme cases, long-term banning.

“Punishment has to be based on the intensity of the crime, and seriousness. You cannot punish every crime with ten years sentence. Sometimes financial penalties are needed,” said Parrikar.

The minister provided new glimpses into DPP-2016, which he first outlined on January 11. It had promised a boost to indigenous design, and to the “Make” programme in which the government subsidises equipment development by the private and public sector.

With only two “Make” projects actually awarded in the decade since the “Make” procedure was instituted, Parrikar said: “We shall be starting eight to 10 projects every year under “Make” category. These will create an eco-system in terms of vendor development.”

Owners of micro, small and medium enterprises (MSMEs) in the audience later told Business Standard that 8-10 projects a year were not nearly enough. Given that DPP-2016 includes a special category of “Make” projects for MSMEs, they are looking to the ministry for many more such projects.

There was praise, however, for the DPP decision to allow vendors to retain the intellectual property (IP) they develop in a “Make” project, allowing them to translate that into equipment for sale in India and internationally.

Parrikar addressed criticism over DPP-2016’s dilution of the offset policy, which has so far imposed offsets on international defence contracts worth Rs 300 crore or more. The new policy dilutes that liability to contracts worth Rs 2,000 crore or more.

“The Rs 300-crore limit was set up in 2012; the cost [of defence equipment] has also gone up. Secondly, we are piling up offsets at a huge rate. And no one gives you offsets free… You have to pay for it up-front in the [equipment] price. And the cost can be anywhere between 12-13 per cent to 17-18 per cent,” said Parrikar.

“Secondly, we have got a lot of offsets which have been (already) signed. $5 billion signed, and another $6-7 billion are in the pipeline. This itself takes it to around $11-12 billion. I think this is enough for us to absorb over the next 8-10 years. Just piling up offsets may not be required,” he continued.

Parrikar also claimed that offsets would be made irrelevant by “Make in India”. “If my full strategy is shifting towards producing the product in India itself, indirectly I’m asking for almost 100 per cent offsets,” said the defence minister.

There were few takers for this amongst Indian entrepreneurs in the audience. As several pointed out to Business Standard, well-structured offsets could benefit both the foreign vendor and Indian industry, which offers high quality, low-cost manufacture that would lower the vendors’ costs. Furthermore, offsets liabilities are piling up mainly because the defence ministry has performed woefully in overseeing and enforcing the offset programme. Finally, even if a high percentage of a foreign weapon system were to be built in India, offsets could be discharged through technology transfer, skills development, and carrying out research & development in India.

DPP-2016 could see changes, with Parrikar repeatedly soliciting suggestions from the environment. “No document can be perfect, and [the new DPP] is also not static. We are willing to take into consideration different viewpoints later, even after it is promulgated,” he promised.

Source : Business Standard


NEW DELHI: In a first, the Army is planning to share its concept of the battlefield and warfighting with the Indian industry, hoping that the engagement will generate innovative combat solutions from the private sector. A series of workshops are planned across the nation – in smaller, non-metro towns – to interact with defence manufacturers to share the modernisation requirements of the Army.

As part of the Make in India initiative, the armed forces have in recent months been conducting several engagements in the capital but for the first time, the interactions are set to shift to smaller towns where manufacturers, companies and startups are located.

The Army, which has the largest budget among the three forces, has equipment requirements that are relatively low tech and can be sourced from Indian manufacturers more easily. While these requirements and needs have traditionally been shrouded in secrecy, plans are in place to make things more transparent to bring the industry on board.

“The idea is to share how the army fights. A bottom up perspective of the battlefield will be explained to the industry. How operations are carried out along the line of control or how militants are engaged. This will enable the industry to suggest innovations for warfighting,” an official involved in the process said.

The concept of starting the workshops in smaller cities is also in line with the government’s policy of decentralization. Sources have told ET that the workshops are likely to begin in towns like Pune, Ahmedabad, Bangalore and Lucknow. Among other initiatives that the Army is planning to promote indigenisation is the setting up of an Army Design Bureau ( ADB) that would assist the industry and DRDO with weapon design and modernization.

Sourcs: ET

This is a game changing policy which will push India towards rapid indigenisation and on the path to self-reliance and global leadership in defence. While the key provisions of the policy were announced after repeated delays, the final outcome is indicative of the enormous efforts that more than justify the delays.

Buy Indian

The most revolutionary aspect of the new Defence Procurement Procedure (DPP) is the introduction of the new category called Buy Indian-Indigenously Designed, Developed and Manufactured (IDDM). For the first time in the history of Indian defence procurement the importance of design and development has been recognised by the Ministry of Defence. It is important to state that only if equipment is indigenously designed and developed will there be more jobs employing scientific talent and India, from being the largest importer, will become a global leader in defence equipment. The game is that the technology, the IP in the products, should be owned by Indian companies. Otherwise we shall be forever dependant on foreign technology and will never become a global leader for the defence industry. Given the fact that almost 70% to 80% of the value capture is done at the design level, it was strange that no provision existed till now to encourage the design and development in India. The focus, till now, has been, at best, on getting the technology and becoming low-cost manufacturing coolies at best, or just, worst, just importing. Introduction of the new category, IDDM, changes everything.

As per Buy Indian (IDDM), if the product is designed in India and 40% of the equipment has indigenous content it will qualify under this category. If 60% of the content is indigenous, and even if the design is not owned by Indian company, this clause will be applied.

This category is going to ensure huge inflow of funds into research and development and will ensure that the scientific talent in India is engaged in developing cutting edge technologies in Defence. With such huge investments, going into R&D, India, far from being a destination for out-dated equipment, will become the source for trail-blazing technology in defence.

Single Vendor Situations

Another issue that the Indian industry had was the insistence previously by the Ministry of Defence for having at least two vendors till TEC stage even under Buy Indian category. For much of the defence equipment, there are only 4 or 5 major vendors world-wide, expecting 2 vendors even under Buy Indian category would be foolhardy and this anomaly existed earlier. The new DPP ensures that even if single vendor situation arises at bid stage, the procurement will be concluded, if the product qualifies and due process is followed.

The other changes include increase of indigenous content under Buy Indian category from 30% to 40%. Under Buy and Make Indian and Buy and categories the requirement of indigenous content has been raised from 30% to 50%.

RFP Parameters – Finer Distinction

With respect to Request for Proposal (RFP), on the request of various stakeholders especially the armed forces, the parameters have been divided into three categories ‘A’, ‘B’ and Enhanced Performance Parameters.

‘A’ parameters are those parameters which are to be demonstratedat trial stage itself.

‘B’ parameters are those parameters which need not be demonstrated during the trial process but the capability to integrate them should be conveyed to the Ministry of Defence and the same should be included in the production units.

Enhanced Performance Parameters is for additional capabilities over and above the essential parameters for which additional credit score will be given to the vendor while evaluating the product cost.

Increase in Offset Threshold – Mystifying

One mystifying aspect in this policy is the increase in applicability of offset clause for acquisitions from foreign vendors from Rs 300Cr to Rs 2000cr. Three reasons can, probably, be assigned for increasing this limit:

  1. The Ministry of Defence possibly found it difficult to properly monitor so many offset proposals and contracts. With Rs 2000 crores, there would be lesser offsets to take care of, thus better monitored.
  1. The evaluation of quality offset obligation, under the new dispensation, has become extremely rigorous and any deviations, which were being allowed earlier, are now being rejected. This has led to piling of vast unfulfilled offset obligations. 3. The cost of acquisition becomes significantly high when offset obligation is included. In fact the Ministry of Defence has gone on record and said that the cost quoted by the vendor increases by as much as 20% whenever there is an offset obligation.

Perhaps these reasons could have convinced the Ministry of Defence to increase the offset requirement from Rs 300 crore to Rs 2,000 crore.

Make Procedures

Another major change that has happened is with respect to make procedures. Make procedure has four sub categories:

  1. Government funded projects: Under this category 90% of the funding is done by the government and 10% is industry funded. There are two subcategories under this-

-Projects under Rs 10 crore are reserved for MSMEs

-Open category if it is more than 10cr or if MSME cannot develop it even if it is under 10 crore

  1. Industry funded projects:

– Projects under Rs 3 crore are reserved for MSMEs.

– More than 3 crore it is Open category

Bold Step – Refund of R&D Expenditure if orders not placed

One encouraging feature for all the make projects where the product development is successful is that if the Government does not place the order within 24 months of developing the product, the government will refund 100% of contribution made by the industry. This increases the Govt’s responsibility tremendously and insures the risk taken by the industry.

Again under make only firms with majority controlled by Indian residents will be eligible to participate.In addition the companies should be existence for 5 years (3 in the case of MSMEs) and they should be rated B++.Minimum net worth criteria of 5% has been set in relation to the development cost only in cases where the development cost is exceeding 5,000 crore. Otherwise positive net worth is the minimum eligibility criteria to bid for projects.

Overall this is a great policy initiative that the Indian defence industry and something that the country can cheer about. I believe this policy is the fastest way to the path of self-reliance in Defence.

Source: Business World

MUMBAI: Even as expectations run high from the proposed amendments in defence procurement procedure (DPP) policy, the proliferation of domestic manufacturing in the sector is not likely to take place in the near to medium term, says a report.

India has lost many opportunities in the past and “the extent of indigenisation is far from the point where defence ordering can lead to meaningful domestic business,” according to a recent report by ICICI Securities.

“While a lot of excitement has been created around DPP 2013 and expected changes to it, proliferation of domestic manufacturing in the defence sector is not something to be expected in the near to medium term,” it said.

“As such, any enthusiastic expectation on defence company valuations is difficult to sustain,” it added.

As per the report, limited areas such as radars and missiles, where the capability build-up process started taking shape long time back, would see Indigenisation.

“Over the next five years, we see limited prospects of meaningful indigenisation barring radars and missiles,” the report added.

The government has appointed a committee to evolve a policy framework to facilitate ‘Make in India’ in defence manufacturing, align the policy evolved with DPP-2013 and suggest requisite amendments in DPP-2013 to remove bottlenecks in the procurement process and also simplify and rationalise various aspects of defence procurement.

Defence Minister Manohar Parrikar had recently said the new and simplified defence procurement procedure(DPP) would be out soon, and a defence procurement manual(DPM) would also be finalised by June this year.


The HAL Rudra helicopter is equipped with SAAB Integrated Defensive Aids Suite (IDAS), radar warning receiver, IR jammer, flare and chaff dispenser

NEW DELHI: In a surprise move, the Defence Forces have been barred from procuring jammers under new guidelines unveiled today by the government which will now allow only states’ police and jail authorities and central security agencies like IB and RAW to buy the equipment.

The decision to keep Defence forces out of the list of authorised agencies is significant as questions were raised on the now-defunct Army’s Technical Support Division (TSD).

The TSD, which was set up during the tenure of the controversial former Army chief (now Union Minister) General V K Singh, who was accused of carrying out unauthorised operations. The jammers imported by the TSD for evaluation purpose could not be accounted for after the government decided to close the TSD.

“Jammers can be procured only by states’ police department and jail authorities, and central government security agencies like RAW and IB,” the new policy issued by Cabinet Secretariat said.

There was no mention of Defence Forces being allowed to procure in the new guidelines.

It modifies last year guidelines on procurement and use of jammers which had “Defence Forces” among other authorised agencies that can buy jammers. The new norms also restricts exam conducting bodies like Union Public Service Commission (UPSC) from procuring jammers but allows it to deploy “low powered jammers to prevent cheating during examinations”.

In case of movement of VVIPs guarded by Special Protection Group (SPG), all type of jammers procured by government agencies should be deployed in the vicinity, it said.

The new policy also bars import of jammers without getting a license from Directorate General of Foreign Trade (DGFT).

“Private sector organisation and/or private individuals cannot procure or use jammers in India. These norms take into account the need to guard against random proliferation of jammers as well as to ensure that jammers installed do not unduly interfere with the existing mobile phone networks,” the guidelines said.

Prior permission of Secretary (Security) in Cabinet Secretariat must be obtained before procurement of jammers, it said.


TIME TO PUT YOUR FOOT DOWN Soldiers being forced to buy their boots and uniforms as those issued to them are of poor quality; OFB inundated with complaints
Soldiers of the world’s second-biggest army are being forced to buy their own boots and uniforms because those issued to them are so poor in quality . Defence ministry officials told ET that the Ordnance Factory Board (OFB), responsible for the production of boots and uniforms, has been inundated with complaints about substandard products.While the matter has been raised with the defence ministry , OFB officials are said to have been conducting surveys and inspections across units in the last few months, besides interacting with officials on the quality of products.

The boots are liable to tear and the heavy sole is prone to dropping off, said a soldier who has had to buy a new pair within three months of being issued OFB footwear.

As for uniforms, the biggest complaint is the quality of the material, which gets ripped and fades, adding to colour mismatches. A havildar said that this means getting pulled up at inspections and parades.

Awkward sizing is another complaint, making it also almost impossible for the soldiers of the 1.2 million strong army to find the right fit.“The OFB issues uniforms and boots every 18 months, but they last only three-four months,“ said one of the persons cited above. “There is no option but to buy these from the market.“ OFB hadn’t responded to queries as of press time.

Army headquarters confirmed that there were flaws in the boot design. “Boot High Ankle DVS was reported to have heavy sole and a better design and lighter weight with polyurethane rubber sole for better flexibility has been identified,“ said an official.Approval for an open tender enquiry (OTE) has been obtained, he said.


Put Out Tenders for Accessories

Armies are no longer measured by their size alone, but by their armoury -and how their soldiers are treated. Clearly, the Indian Army has been suffering on the second front. No matter how much we valorise our soldiers, if basic equipment like uniform and boots are sub-standard, there is a serious problem of morale -especially when soldiers are made to make their own purchases. If the ordnance factories can’t do the job, put out tenders to get them from elsewhere.

Source: The Economic Times


The defence ministry will now review the recommendations made by the Aatre committee to see which ones should be accepted for incorporation in the new DPP

by Rajat Pandit

NEW DELHI: Only those private sector companies which have adequate financial strength, demonstrable manufacturing expertise and ability to absorb technology from or such partnerships, under the overall ” Make in India” policy, was submitted to the defence ministry by the high-powered committee led by former DRDO chief V K Aatre on Friday.

The new defence procurement policy (DPP), slated to be promulgated in another two months, will have a separate chapter on “strategic partnerships”, which will require cabinet approval, as well as other measures to bolster the country’s fledging defence industrial base (DIB), as was reported by TOI earlier.

“The idea is to develop an indigenous ecosystem for defence production,” says defence minister Manohar Parrikar, who has also tried to dispel fears that only big companies will be able to corner the proposed “strategic partnerships”.

The defence ministry will now review the recommendations made by the Aatre committee to see which ones should be accepted for incorporation in the new DPP. The “strategic partnership model” to create capacity in the private sector on a long term basis, over and above the capacity and infrastructure that exists in defence PSUs, is slated to gradually replace the existing system to award contracts only to the lowest bidder (L-1).

Incidentally, the failure to encourage the private sector to jump into arms production in a big way as well as the dismal performance of the DRDO and its 50 labs, five defence PSUs, four shipyards and 39 ordnance factories has meant that India still continues to import 65% of its military hardware and software.

The defence ministry hopes the revised DPP, which gives top priority to a new indigenous design, development and manufacturing (IDDM) category under “Buy Indian”, will gradually lead to a robust indigenous DIB and help in shedding India’s dubious distinction of being the world’s largest arms importer.

The Aatre committee report is a follow-up to the earlier Dhirendra Singh expert committee, which recommended “strategic partnerships” with select domestic private sector companies in the six critical areas.

Officials say the government will conduct a “pre-audit” for a strategic partner to ensure it does not take the system for a ride as well as broadly oversee the company’s work. “There will be no interference in the company’s day-to-day functioning,” said an official.

The Dhirendra Singh committee had held that the selection process for the strategic partners should be “transparent and based on clear criteria” stated upfront. “To guard against any conglomerate formation or cartelization, one private industry should become a strategic partner for only one platform/system. It cannot have cross holdings in a company that is a strategic partner for another platform,” it said.


Tata Motors’ role in developing a future infantry combat vehicle (FICV) for the army has received a jolt, with its leadership hopes dissolved and its very participation in question.On Thursday, the defence ministry ruled that Tata Motors’ domestic operations alone would count towards its commercial eligibility profile – which is a key criterion for being chosen for the Rs 50,000-crore FICV project.

In a fax sent to all 10 contenders for the project, the ministry responded to a question from Tata Motors: Can the financials of a subsidiary, whether inside or outside India, be added into the financials of a participating company? The ministry’s response, which has been reviewed by Business Standard, stated: “(a) Companies are required to have capital assets in India, and; (b) Their turnover in India will be accounted for determination of threshold limit of turnover.”

Tata Motors’ query clearly referred to its UK-based subsidiary, Jaguar Land Rover (JLR). Last year, if profits from JLR were to be counted, Tata Motors had a consolidated annual turnover of Rs 263,695 crore and a net profit of Rs 13,986 crore. Without JLR’s profits, Tata Motors generated an annual turnover of Rs 38,176 crore from its domestic operations and posted a net loss of Rs 4,739 crore.Without adding JLR’s financials, Tata Motors falls to the number three position in a race that will have just two winners. The winning “commercial assessment” may now be that of Larsen & Toubro (L&T), with an annual turnover of Rs 57,017 crore in the same period. Mahindra & Mahindra (M&M), with its Rs 39,794-crore annual turnover, will be marginally ahead of Tata Motors.

On October 27, the defence ministry had reached a similar conclusion regarding JLR. But an aggrieved and unconvinced Tata Motors sent in a specific query. When contacted, a Tata Motors spokesperson said: “We have just received this notification on Thursday and, while we are still studying it in detail, we note that we meet all the requisite criteria for bidding for the FICV project.”

The Defence Procurement Policy of 2008, which governs the FICV project, specifies eligibility criteria for Indian private companies. It says they should have been registered for at least 10 years, have capital assets in India of at least Rs 100 crore and an annual turnover greater than Rs 1,000 crore for each of the preceding three years, and a minimum credit rating equivalent to CRISIL/ICRA “A”.

While Tata Motors meets these criteria, there is a question mark over another criterion that demands “consistent profitable financial record showing profits in at least three years of the past five years, and with no accumulated losses”. Tata Motors’ loss of Rs 4,739 crore last year was greater than the profits of the four preceding years.

Ten Indian companies are in race for the FICV project – L&T, Tata Power (SED), Tata Motors, M&M, Bharat Forge, Pipavav Defence, Rolta India, Punj Lloyd, Titagarh Wagons, and the Ordnance Factory Board. On Friday, these companies are due to submit their plans for building the FICV – a tracked, armoured vehicle that will protect infantrymen riding into battle. The FICV must be amphibious and air-portable in the air force’s IL-76 and C-17 aircraft; and fire anti-tank guided missiles that destroy tanks at ranges of 4,000 metres.

The defence ministry will choose two proposals. Those vendors will form a consortium and tie up with foreign technology partners to design and develop separate FICVs, with the defence ministry reimbursing 80 per cent of their design expenses. The better of the two will be selected, and the vendor will mass-produce 2,600 vehicles to replace the army’s obsolescent Boyevaya Mashina Pekhoty-2.

SOURCE: Ajai Shukla  |