Key Policy Reforms
Key Policy Reforms :- To create a level playing field in the Defense Manufacturing sector, some revisions are made to the existing policies, such as the special privilege to Ordnance Factories Board and Defense Public Sector Undertakings in excise duty/custom duty has been discontinued. Since April 2015, all Indian Industries are subjected to the same kind of excise and custom duty.
Defence Procurement Procedure (DPP 2016)
The defense procurement is governed by the Defense Procurement Procedure (DPP 2016).
On April 2, 2016, the Defense Procurement Procedure (DPP) 2013 was amended, some major amendments are:
–Buy Indian – IDDM (Indigenously Designed, Developed and Manufactured) category introduced.
–Under ‘Buy & Make (Indian)’ category, Indian companies are allowed for tie-ups with a foreign Original Equipment Manufacturer (OEM) for Transfer of Technology.
–Under ‘Buy & Make’ Category of Capital Acquisition, the foreign vendor is required to transfer the Technology to the Indian Production agency for the indigenous production of the items. The Foreign OEM can select Indian Production agency of its choice.
–In the Defense products list for industrial licensing a number of parts/components, castings/ forgings etc. have been excluded from the purview of industrial licensing.
–The defense security manual for the private sector defense manufacturing units has been finalized.
–The MAKE procedure has been further revised to promote the indigenous design and development and to promote MSMEs. There are two subcategories of Make:
Make I (Government Funded) – Funding of projects by the government has been increased from 80 to 90 percent. If vendor develops a prototype but does not get an order within two years, then remaining 10% will also get reimbursed. There is also a provision for 20% advance against the bank guarantee. Time limit for reimbursement of development cost is 60 days. The projects with estimated cost of prototype development phase not exceeding Rs10 Crores; will be reserved for the MSMEs.
Make II (Industry Funded) – Reimbursement of 100% of development cost if the RFP is not issued within two years of the successful development of the prototype. The projects with the estimated cost of prototype development phase not exceeding INR 3 crore are reserved for the MSMEs.
The scope of the feasibility study has been elaborated. The MSME associations are being involved in carrying out feasibility studies for ‘Make’ projects. In the discharge of offset obligations, a multiplier of 1.50 has been permitted where MSMEs are Indian Offset Partners (IOPs). Besides this, the DPSU & OFB have been mandated to develop outsourcing/vendor development plans to increase outsourcing from private players, particularly MSMEs. Due to such steps, the value of outsourcing as a percentage of the value of production has increased to 37.4% in the 2015-16 as compared to 2014-15.
Simplified Make II Procedure
On 16 January 2018, the Defense Acquisition Council, chaired by Defense Minister Ms. Nirmala Sitharaman has cleared a simplified ‘Make-II’ procedure. The new process will help import substitution and promote innovative solutions. This simplified ‘Make-II’ procedure will amend the existing ‘Make Procedure’ in Defense Procurement Procedure (DPP)-2016.
The key features of the new ‘Make-II’ procedure include the following:
–The industry can suggest projects, especially among those items which are currently being imported. Start-ups or individuals can also suggest proposals. Service Headquarters will also list out a series of projects which can be undertaken as ‘Make-II’ projects under the new procedure.
–The potential ‘Make-II’ projects will be approved by a collegiate comprising of DRDO, HQ (IDS), Department of Defense under a committee chaired by Secretary (Defense Production). Based on the in-principle approval agreed by this committee, the projects will be hosted on Ministry of Defense/Department of Defense Production’s website inviting industry to participate.
–There will be no limit to the number of industry who may respond to the EoI for development of the prototype subject to meeting the minimum qualification criteria. The design and development time of 12 to 30 weeks is granted to industry to offer the prototypes.
–There is no limit to the number of industry players who may show interest and offer prototype.
–After this period, a commercial RFP will be issued. Once the RFP is issued, it shall not be retracted. The industry who wins the bid, is assured of an order.
–Service Headquarter (SHQ) will constitute a Project Facilitation Team for facilitating the process under this procedure.
–The case will be progressed even if there is single entity offering an innovative solution.
–The industry who develops the product will retain the title and ownership and all other rights in intellectual property. However, for some specified reasons like National Security, Government shall have ‘March-in’ rights.
–Normally, there shall be no negotiations by Contract Negotiation Committee (CNC) in multi-vendor contracts.
–‘Make-II’ procedure reduces the total time from in-principle approval to placing of order by 50 percent. The estimated time to finish the whole process has come down to 69 to 103 weeks.
–Projects involving developmental cost of less than three crores will be reserved for MSME.
(Source: official Press Release)
Defense Offset Policy
One of the main objectives of this policy, as stated in the official document, is to leverage capital acquisitions to develop the domestic defense industry. The offset policy in capital purchase contracts with foreign defense OEMs, stipulates a mandatory offset requirement of a minimum of 30% for defense contracts and the threshold for defense offset has been increased from INR 300 crore to 2,000 crore. Apart from this, a simplified mechanism to change offset partners, components, and dollar commitments have also been introduced to accelerate the stalled offset investments.
Strategy for Defense Exports
To streamline the export of indigenously developed defense equipment, the Strategy for Defense Exports (SDE) was launched. This policy has defined the clear procedures and an institutional mechanism for export promotion and regulation.
Ease of Doing Business
The foreign vendors no need to provide all details of their Indian partner at the time of bidding. They can finalize Indian Offset Partners and offset product details one year prior to the offset release. During the last two years, 100% offset claims were registered.
–Acceptance of Necessity (AoN) validity has been reduced to 6 months, earlier it was one year.
–The list of military items for the purpose of issuing NOC for export has been notified by the Government to remove any kind of ambiguity and for transparency in the process.
–The requirement of single largest Indian ownership of 51% of equity has been removed.
–Standard Operating Procedures (SOPs) for the issue of NOC for export of military items have been simplified and specific timelines prescribed. The maximum processing time has been reduced to 25 days. During FY 2015-16 some 241 NOCs were issued.
–From July 2015, the requirement to obtain Government signed End User Certificate for the export of parts, components, and other non-sensitive military items have been eliminated.
–The provision of ‘in-principle’ approval for export incorporated in the SOP so that domestic players can explore opportunities in overseas markets.
Licensing
Now Industrial Licensing can be applied online. A large number of components, parts, subsystems, testing equipment, and production equipment excluded from the industrial licensing. The Validity of Industrial License granted has been increased to 15 years, earlier it was 7 years. There is also a provision to further extend it by 3 years on a case-to-case basis. During April 2014 to March 2016, some 119 industrial licenses have been issued to private defense equipment manufacturers. The government has also launched a separate portal – makeinindiadefence.com, which provides the details of policy and procedural issues related to defense manufacturing industry.
New Strategic Partnership Policy
On 31st May 2017, the Strategic Partnership Policy has been included in Defense Procurement Procedure. According to this policy, the selected Indian private sector companies will partner with foreign original equipment manufacturers (OEMs) to jointly manufacture fighter jets, helicopters, submarines and armoured vehicles under the “Make in India” framework. The global vendors who want to tie-up with Indian private sector companies will receive the formal assurances from their government to get the necessary licenses. As per the framework given in this policy, the government will play the role of a facilitator in the strategic partnership between Indian Strategic Partner and Foreign Original Equipment Manufacturer. The Indian private companies will get shortlisted by the ministry on the basis of technological and financial parameters. The foreign vendors will also get selected by the Ministry on the basis of technology offered and the lowest price bid. The Strategic Partnership Policy is crucial to building an ecosystem of Indigenous Defense Manufacturing that comprises the government, foreign partners and domestic vendors and suppliers.
This policy has incorporated some of the major recommendations of Dhirendra Singh Committee. The Committee made 43 recommendations, out of which, 16 recommendations were regarding Make-in-India and 27 recommendations were regarding Defense Procurement Policy. One of the most crucial aspects of this Strategic Partnership Policy, according to the Dhirendra Singh report is the selection criteria and selection process.
(Source of the facts: government’s official website/press releases)
For more details download the official report