DPP 2016 – Pol­icy aim­ing to build de­fence in­dus­trial base in In­dia

If we have to lower the cost of de­fence pro­cure­ment while en­sur­ing that com­pet­i­tive­ness of our weapon sys­tems is cut­ting edge, our pro­cure­ment process has to go many lev­els be­low than merely buy­ing lat­est weapons on the block with hope of sub­se­quent piece


[ By Bhaskar Ka­nungo and C.S. Kr­ish­nadev

I] n De­cem­ber 1941, when Ja­panese air­craft and naval ships launched a sur­prise morn­ing at­tack on the Amer­i­can naval base at Pearl Har­bor, Hawaii, the US econ­omy was still bat­tling the af­ter­math of 1929 eco­nomic de­pres­sion. In less than 18 months, US econ­omy, launched forth an un­prece­dented man­u­fac­tur­ing ma­chine which pro­duced an end­less ar­ray of tanks, de­stroy­ers, air­crafts and ri­fles which saw the end of Axis pow­ers and the Euro­pean dom­i­nated world or­der. This un­leash­ing of en­ter­prise not only ended great eco­nomic de­pres­sion, but paved the way for rise of the United States as a su­per­power. It must be noted that the men and the en­ti­ties which led this change were au­to­mo­bile and auto an­cil­lary com­pa­nies. The US au­to­mo­tive in­dus­try had in­ter­nalised Henry Ford’s as­sem­bly line man­u­fac­tur­ing and could now ap­ply this to mak­ing of tanks, jeeps and air­craft. It rapidly chan­nelised pre­cious com­modi­ties like steel and ex­per­tise such as weld­ing from auto man­u­fac­tur­ing to de­fence pro­duc­tion. Sub­se­quently, some of the big­gest be­he­moths of de­fence man­u­fac­tur­ing in world to­day from Boe­ing, Lock­heed to Gen­eral Dy­nam­ics lever­aged this base to emerge as the big­gest weapon sys­tem sup­pli­ers of the world.

Al­though it’s naive to sug­gest that In­dia will have to ini­ti­ate a war of a pro­por­tion of World War II to re­vi­talise its de­fence man­u­fac­tur­ing sec­tor, there are im­por­tant lessons to be drawn from study­ing the ori­gins of de­fence man­u­fac­tur­ing in the United States. The De­fence Pro­cure­ment Pro­ce­dure (DPP) 2016 is a bold at­tempt in lev­er­ag­ing In­dia’s pub­lic and pri­vate sec­tor ca­pac­i­ties to­wards cre­at­ing a ro­bust de­fence man­u­fac­tur­ing ecosys­tem.

The much awaited DPP 2016 was an­nounced by De­fence Min­is­ter on March 28, 2016, dur­ing in­au­gu­ral of 9th De­f­expo 2016. DPP 2016 as ex­pected has fo­cused to­wards self-re­liance with the same be­ing em­pha­sised in the pre­am­ble. This is most im­por­tant as in past we have wit­nessed de­spite a well thought out De­fence Pro­duc­tion Pol­icy (DPrP 2011) in force, no of­fi­cial has ever both­ered to re­fer it while mak­ing cap­i­tal pro­cure­ment. In­dian in­dus­try bod­ies in their rep­re­sen­ta­tion to the min­istry have al­ways em­pha­sised on the DPrP 2011 which clearly spelt out the need of self-re­liance and greater in­di­geni­sa­tion. The same was re­it­er­ated to the Ex­perts Com­mit­tee for- mu­lated for the re­view and re­vi­sion of DPP 2013.

In­dian strate­gic com­mu­nity over the last decade has time and again de­lib­er­ated on the need of strong de­fence in­dus­trial base in coun­try. This was fur­ther ne­ces­si­tated with the suc­cess­ful con­duct of Oper­a­tion Shakti (Pokhran II) as a con­se­quence of which In­dia faced global sanc­tions and tech­nol­ogy de­nials. It was the De­fence Re­search and De­vel­op­ment Or­gan­i­sa­tion (DRDO) and com­bi­na­tion of de­fence pub­lic sec­tor un­der­tak­ings (DPSUs), Ord­nance Fac­to­ries Board (OFB’s) and hand­ful of pri­vate sec­tor com­pa­nies who took the chal­lenge of in­dige­nous de­vel­op­ment of tech­nol­ogy and prod­ucts to meet the strate­gic re­quire­ments and safe­guard­ing of the In­dian fron­tiers. The Min­istry of De­fence (MoD) while for­mu­lat­ing DPP 2016 has kept the vul­ner­a­bil­ity of ‘over-de­pen­dence and re­lated risks’ while for­mu­lat­ing the DPP 2016. The new pol­icy, in or­der to give filip to de­fence pro­duc­tion, has thus pre­ferred to first pro­cure in­dige­nously de­signed and de­vel­oped prod­ucts from the In­dian en­ti­ties which have the prod­uct man­u­fac­tur­ing ca­pac­ity. This pre­ferred cat­e­gory is called ‘Buy (In­dian–IDDM)’ where IDDM stands for In­dige­nously De­signed, De­vel­oped and Man­u­fac­tured. Un­der this new and first pref­er­ence cat­e­gory, In­dian ven­dor needs to en­sure prod­ucts that have been in­dige­nously de­signed, de­vel­oped and man­u­fac­tured has a min­i­mum of 40 per cent in­dige­nous con­tent (IC) on cost ba­sis of the to­tal con­tract value; OR, prod­ucts hav­ing 60 per cent IC on cost ba­sis of the to­tal con­tract value, which may not have been de­signed and de­vel­oped in­dige­nously. Apart from over­all IC as de­tailed above, the same per­cent­age of IC will also be re­quired in (a) Ba­sic Cost of Equip­ment; (b) Cost of Man­u­fac­tur­ers’ Rec­om­mended List of Spares (MRLS); and (c) Cost of Spe­cial Main­te­nance Tools (SMT) and Spe­cial Test Equip­ment (STE), taken to­gether at all stages, in­clud­ing FET stage.

It shows the com­mit­ment of the govern­ment to sup­port those com­pa­nies which are se­ri­ous in R&Dled in­no­va­tion aimed at in­dige­nous de­vel­op­ment of prod­ucts, rather than those com­pa­nies which sim­ply buy a sub­stan­tial por­tion of for­eign tech­nol­ogy or prod­ucts with de­vel­op­ment of some less tech­no­log­i­cally com­plex sub­sys­tems or parts as a lat­eral value ad­di­tion. This par­tic­u­lar cat­e­gory will en­thuse com­pa­nies to in­vest in R&D, in­no­vate, de­velop and har­ness skills and de­velop niche prod­ucts for meet­ing do­mes­tic re­quire­ments. With this In­dian man­u­fac­tur­ing will not just march to­wards self-re­liance, sav-

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