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-