September 2016

DPPs Hopes, Private

and Public Sectors
n

By Gp Capt AK Sachdev (Retd)

a n ga lo r e . O n M a rc h 2 8 , t h e
Defence Minister released the Defence
Procurement Procedure 2016 at the
inaugural session of DefexpoIndia 2016
at Goa. There had been a build up to
the release over the preceding few
months and the Defexpo event was
an appropriate occasion to unveil the
much awaited policy as also to reiterate
the governments commitment to the
Make in India programme. However, to
analysts, the unveiling of the document
was anti-climactic inasmuch as a vital
chapter on strategic partnerships (and
some append ices and annexures) was
excluded from the document and it was
announced that the missing portions would
be finalised in another three months time.
The excluded chapter was to have been
the crucial policy providing guidance on the
participation of domestic industrial base and
foreign vendors in the modernisation that
Indian armed forces await with growing
impatience. The Preamble to DPP 2016
acknowledges that, While maintaining
highest standards of transparency, probity
and public accountability, a balance between
competing requirements such as expeditious
procurement, high quality standards and
appropriate costs needs to be established. As
a result, decision making pertaining to defence
procurement remains unique and complex.
The Preamble calls self reliance a major
cornerstone on which military capability rests
and goes on to assert that the concept of
Make in India is the focal point of defence
acquisition policy/procedure. The first chapter
of the previous version, DPP 2013, defined the
aim as to ensure expeditious procurement
of the approved requirements of the Armed
Forces in terms of capabilities sought and
time frame prescribed by optimally utilising

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the allocated budgetary resources.

Significantly, DPP 2016 changed that
to read to ensure timely procurement of
military equipment and systems as required
by the Armed Forces.
The Indian defence forces certainly hope
that the change from expeditious (a loose
ended term) to timely is not merely semantic
but represents a desire of the establishment
to set timelines for procurement procedures
to lead to actual acquisitions. Waiting for
clarity on private participation are a host of
companies manufacturing equipment and
components crucially needed for defence
preparedness.

Analog Devices Incorporated

One such company is Analog Devices

Incorporated (ADI) which recently organised
a Military Seminar in Bangalore to enhance
awareness about its industrial capability in the
defence sector. The target audience was not
military men in uniform (despite the label of
the event) but rather large public and private
sector entities which can benefit (and have
been benefitting) from ADIs fortes.
Indeed, ADI never fails to proclaim that
they have been the pioneers of Make in India
since 1981. A US company with more than
five decades of experience and over 2,200
patents to its credit, its products include
Amplifiers, Analog-to-Digital Converters, Audio
and Video Products, Broadband, Clock and
Timing Devices, Digital-to-Analog Converters,
OpticalPower Management, Processors,
RF and Microwave, Sensors, Switches and
Multiplexers.
Thus, it holds value in the fields of radars,
electronic warfare, avionics, space and
satellites, navigation and communication. It
has been investing in aerospace and defence
as priority areas where it sees the significant
IndiaStrategic

September 2016

value of differentiation that it can bring to the

market; it acquired a company called Hittite
Technology a few years ago with its own
strengths in the electronics arena. ADI now
feels it is all set to increase its participation in
defence projects, especially with changes in the
way defence production and procurement are
being looked at by the government.
A significant change in DPP 2016 is the
prioritisation of acquisition categories for
procurement of defence equipment with Buy
(Indian IDDM) (Indegenously Designed,
Developed and Manufactured) category being
placed above all the categories existing earlier
i.e. Buy (Indian), Buy and Make (Indian), Buy
and Make, Buy(Global) and Make.
Buy (Indian-IDDM) category refers to the
procurement of products from an Indian
vendor meeting one of the two conditions:
products that have been indigenously designed,
developed and manufactured with a minimum
of 40 per cent Indigenous Content (IC) on
cost basis of the total contract value; or
alternatively, products having 60 per cent IC
on cost basis of the total contract value, which
may not have been designed and developed
indigenously.
T here is thus an effort to encourage
ind igenous design --- an area we have
been lagging in badly as far as defence and
aerospace industries are concerned. It is in this
context that companies like ADI are optimistic
about their future prospects. ADI management
appears to be upbeat on Make In India
and the changes being brought about in the
business environment in India, with a new
DPP in place and other policy changes being
thrown up by the government in its pursuit of
Make In India.
At the moment, the private sector appears
to be struggling to get defence orders; on June
22, the private sector reportedly sent a written
complaint to the Prime Ministers Office (PMO)
that it has received negligible orders from the
government in the last two years and that MoD
has instead favoured PSUs that are already
facing massive delays. Indeed, a CAG report
tabled on July 26 reaffirms the sentiments
of the private sector and is scathing in its
assessment that, while a majority of contracts
in the last two years have gone to PSUs, 63 per
cent of the contracts given during 2007-2012
period were delayed for various reasons.
On the positive balance, in a written reply to
a question in Rajya Sabha July 26, the Defence
IndiaStrategic

Minister said that there has been no case

involving corruption in defence procurements
undertaken during the last two years. Business
environment thus appears to be showing an
improvement.

The Future

The DPP 2016 chapter on strategic partnerships,

so conspicuous by its absence so far, is being
deliberated upon by an internal committee of
the Ministry of Defence (MoD). The committee,
set up in June after prolonged deliberations
by the MoD with defence industrial entities,
defence services and domain experts, has nine
members and has met several times but a final
solution appears to be some distance away on
the horizon.
T here is deep debate about whether
permitting just one or two companies in the
categories identified would lead to monopolistic
situations, thus stifling competition.

The governments stated intent

is to make it easy for Defence
PSUs and level the playing field
for them and the private sector,
possibly in view of the coming
procedure for partnerships
The other debate is about allowing a particular
foreign firm which enters into partnerships
in any one category to forge an alliance in
another category. Meanwhile, the Cabinet
has approved abolition of separate guidelines
for establishing joint venture companies by
Defence Public Sector Undertakings (PSUs); thus
all the nine Defence PSUs are covered by the
guidelines applicable to all Central Public Sector
Enterprises. The governments stated intent is
to make it easy for Defence PSUs and level the
playing field for them and the private sector,
possibly in view of the coming procedure for
partnerships.
Whilst the final shape of the strategic
partnerships policy is awaited, one hopes
that this step will provide impetus to defence
manufacturing by PSUs although how they
compete with the substantially more efficient
private sector companies is yet to be seen in
n
coming years.
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