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New draft defence procurement Procedure 2020 unveiled, aims to boost indigenization; introduced ‘leasing’ category

On March 20, 2020, Union Defence Minister Rajnath Singh proposed a new “Draft Defence Procurement Procedure (DPP) 2020” featuring promotion of indigenous manufacturing, during a meeting in New Delhi. The proposed DPP 2020 will come into effect from 1st April 2020 by replacing DPP 2016, and would remain in force till March 31, 2025. Its draft has been finalized by a high-level committee headed by Apurva Chandra, Director General (DG) Acquisition, Ministry of Defence that was set up in August 2019.New draft defence

  • A total of 47 amendments carried out as part of Business Process Reengineering to draft DPP 2020.
  • The new Draft has proposed a simplified procedure on military procurement to ensure seamless flow in acquisition and maintenance of assets.
  • The objective of DPP 2020 is to turn India into a global manufacturing hub, developing a robust defence industrial base, use of indigenous raw materials, and incentivised of special alloys and software.

A look on Key Proposals:

  • Acquisition of Military Equipment on Lease– The ‘Leasing’ has been introduced as a new category for acquisition in addition to existing ‘Buy’ and ‘Make’ categories to substitute huge initial capital outlays with periodical rental payments. Leasing is permitted under two categories i.e., Lease (Indian) where Lessor is an Indian entity and is the owner of the assets and Lease (Global) where Lessor is a Global entity.
  • Hiking Indigenous Content (IC)– Draft proposes increasing the IC stipulated in various categories of procurement by 10% to support the ‘Make in India’ initiative. It will promote the use of indigenous military material and also encourage its development and production. It also proposes to incentivize use of Indigenous raw material
  • Buy (Global – Manufacture in India) category introduced- Foreign vendors’ products that have a minimum of 50% indigenous content will come under this new category. Only the minimum necessary will be bought from abroad while the balance quantities will be manufactured in India.
  • Changes in Buy (Indian-IDDM) category– In “Buy (Indian- IDDM (Indigenously Designed, Developed and Manufactured))” category of the DPP 2020, only Indian products designed in-house, developed and manufactured with a minimum of 50% indigenous content of the total contract value of an Indian vendor would be classified. In DPP 2016 it was 40%.
  • Category DPP 2016 Proposed
    Buy (Indian-IDDM) Min 40% Min 50%
    Buy (Indian) Min 40% Indigenous design – Min 40%, otherwise – Min 60%
    Buy & Make (Indian) Min 50% of Make Min 50% of Make
    Buy & Make Buy & Min 50% of Make
    Buy (Global – Mfr in India) Min 50%
    Buy (Global) Min 30% for Indian vendors
  • Reduced Timelines for Procurement- Timelines for procurement have been reduced to a single stage for projects less than Rs.500 crore and in case of repeat orders.
  • Long term support– It also proposes long term support mandatory for 3-5 years post-warranty.
  • Introduction of “price variation clause“- It will be applicable to all cases where the total cost of contract is more than Rs 1,000 crore and the delivery schedule exceeds 60 months. This clause will escalate the price from the last date of submission of bids till the finalisation by the CNC (Contract Negotiation Committee).

The draft has now been put up on the Defence Ministry website for public suggestions till April 17, 2020.

Read full Draft 2020 here.

About Ministry of Defence
Minister of State (MoS)- Shripad Yesso Naik
Departments- 5: Department of Defence (DOD), Department of Defence Production (DDP), Department of Ex-Servicemen Welfare (DESW), and Defence Research and Development Organisation (DRDO), Department of Military Affairs.