Defence Minister Rajnath Singh on 28 September 2020 unveiled the new Defence Acquisition Procedure of 2020 (DAP 2020), which will govern the procurement of defence equipment from the capital budget. It will supersede the Defence Procurement Procedure of 2016 from October 1. Taking its cue from the prime minister’s Atmanirbhar Abhiyan (self-reliance campaign), DAP 2020 reserves several procurement categories for indigenous firms. The categories of Buy (Indian designed, developed and manufactured), Make I, Make II… and SP model will be exclusively reserved for Indian vendors, MoD said.
 
 
What
  1. DAP 2020 defines an “Indian vendor” as a company that is owned and controlled by resident Indian citizens, with foreign direct investment (FDI) not more than 49 per cent.
  2. The new policy introduces a significant new procurement category called “Buy (Global–Manufacture in India).” 
  3. This stipulates indigenisation of at least 50 per cent of the overall contract value of a foreign purchase — for example fighter aircraft — bought with the intention of subsequently building it in India with technology transfer. 
  4. Meeting the difficult indigenisation requirement would force the vendor to build the equipment in India, rather than supply most of it ready-built from abroad.
  5. This category also encourages vendors to set up facilities in India to manufacture spares and assemblies for the basic equipment, and to set up maintenance, repair, and overhaul (MRO) facilities. With the FDI cap recently raised to 74 per cent, the foreign vendor could do this through a joint venture (JV) firm in India.
  6. The new procedure promotes greater indigenous content in arms and equipment of the military procures, including equipment manufactured in India under licence. In most acquisition categories, DAP-2020 stipulates 10 per cent higher indigenisation than DPP 2016.
  7. Indigenous content will now be calculated on ‘Base Contract Price’, that is Total Contract Price, less taxes and duties, stated the MoD. 
  8. The “import embargo list” of 101 items that the government promulgated last month has been specifically incorporated into DAP 2020.
  9. The new policy seeks to curb the long-running equipment trials the military carries out on equipment offered for procurement. 
  10. DAP 2020 emphasises the need to conduct trials with an objective to nurture competition based on the principles of transparency, fairness and equal opportunities to all and not as a process of elimination.
  11. The Make-1 procedure now incorporates a limit per vendor of Rs 250 crore and reimburses only 70 per cent of the development cost, as compared to 90 per cent in DPP 2016
  12. Under the Make II procedure, defence companies themselves fund the development of equipment to offer the military.
  13. DAP 2020 incorporates a new Make III procedure in which indigenous firms manufacture equipment, platforms or spares for import substitution.
Offsets
  1. DAP 2020 features important changes in the offset guidelines, which under current norms, require vendors who win contracts worth over Rs 2,000 crore to plough back 30 percent of the contract value into designated defence R&D, manufacturing and services. 
  2. The new policy exempts vendors from offset liability in contracts processed under the government-to-government route, as was the Rafale purchase or most contracts concluded with Russia. Nor will offsets be imposed on single-vendor purchases.
  3. Under the new offset policy, “preference will be given to manufacture of complete defence products over components”, states the MoD. 
  4. The new procedure has been drawn up by a review committee headed by the acquisition chief of the Ministry of Defence (MoD).
Other changes
  1. Under the new rules of the DAP, single stage accord of Acceptance of Necessity (AoN) in all cases up to Rs 500 crore has been instituted, thereby reducing procuring time.
  2. Fast Tracked Procurement (FTP) cases, post accord of AoN, will be progressed in accordance with delegated powers.
  3. Also, in the planning process, the Long Term Perspective Plan (LTPP) has been re-designated as Integrated Capability Development Plan (ICDP), shortening the planning period to 10 years from 15 years.
  4. The defence ministry has also clarified that only companies that have more than 50 per cent Indian ownership will be allowed to participate in key Make in India categories, including strategic partnership policy.