The new draft is ‘driven by the tenets of Defence Reforms announced as a part of the Atmanirbhar Bharat Abhiyan’ by the finance minister on May 16, 2020

The MoD notification does not say what specific changes have been made in the draft DAP 2020, but those interested in commenting on 689 pages of the DAP and another 24 pages of the offset guidelines have been graciously given time till August 10 to do so.

The new draft is ‘driven by the tenets of Defence Reforms announced as a part of the Atmanirbhar Bharat Abhiyan’ by the finance minister on May 16, 2020. To serve this rhetoric, some new chapters have been added, apart from whatever changes may have been made in the convoluted text of the document.

There is a full-blown new chapter on the procedure for procurement of defence materiel designed and developed by the Ordnance Factories, Defence Public Sector Undertakings, and the Defence Research & Development Organisation. It provides for a joint mechanism for better coordination between the development agency and the user service to propel development projects.

The efficacy of this mechanism will depend on the ability of its members to take quick decisions to remove the glitches encountered while executing a project, without their having to look over their shoulder to their superior in the organisations they represent. It is not clear from the text of the chapter how is this intended to be achieved.

There is a chapter on the acquisition of Information and Communication Technology (ICT) systems and products. The stages of these acquisition programmes will have to negotiate are not much different from the multi-stage procurement process followed in the normal course, but the content of this chapter has been customised to cater to issues like information security, proof of concept and change management.

The chapter on leasing of platforms that was missing from the draft DPP 2020 has now been included. The Indian MoD is not new to this concept, having taken on lease a nuclear-powered cruise missile submarine from the Soviets in 1987-88. More recently, a $3 billion contract was signed with Russia last March for the lease of an Akula-1 class nuclear-powered attack submarine for a period of ten years.

Intended to enable the armed forces to possess and operate costly platforms which may be required for a limited period or to avoid huge capital expenditure on outright purchase, it is good to have this provision in the DAP. It opens new avenues for capability enhancement without expending the scarce capital budget and phasing the revenue expenditure over the entire period for which the platform is taken on lease.

If the chapter on leasing was missing from the draft DPP 2020, the proposed chapter on ‘Simplified Capital Expenditure Procedure’ (SCEP) for recurring replenishment, repair and refit of in-service equipment/systems, which will be a part of the final document is missing from the draft DAP 2020.

These additional chapters, and the one on post-contract management which was included in the draft DPP 2020 and has been retained with inexplicable re-orientation of its contents are the prominent novel features of the draft DAP 2020. All other new features included in it have been carried forward from the draft DPP 2020.

To recapitulate, the changes made in the draft DPP 2020 included the introduction of some new procurement categories like ‘Buy (Global – Manufacture in India)’; linking life-cycle support with the main procurement contract; changes in the standard clauses of contract mainly to strike a balance between the intellectual property rights of the seller and MoD’s rights to indigenise; and above all, a sweeping revamp of the offset policy.

The most surprising aspect of the revamped offset policy was the exemption of procurements under the inter-governmental agreements (IGAs) from the application of the offset provisions. Many thought that it was an oversight. With the threshold for offset obligation already being raised in 2016 to contracts exceeding Rs 2,000 crore, exemption of contracts covered by the IGAs would drastically reduce the number of contracts carrying offset obligation for the foreign vendors.

Turns out that it was not an oversight. The draft DAP 2020 reiterates that offsets will not be applicable to cases progressed through IGAs like the Foreign Military Sales programme of the US government and the Indo-Russian Inter-Governmental Commission (IRIGC), etc. This will please two of India’s largest suppliers of arms but leave the other two – France and Israel – out in the cold somewhat.

Considering that a large proportion of procurement from foreign sources in recent years has been through programme-specific IGAs or schemes like the FMS, and it may be the preferred route in the future as well, the desirability of continuing with the offset policy needs to be reassessed, especially in view of the fact that the policy has had limited success in the past fourteen years in strengthening the Indian industry,

Of some other changes made in the draft DAP 2020, there is at least one that stands out. Almost all procurement categories like ‘Buy’ and ‘Buy and Make’ require that the equipment to be procured by the MoD should have the prescribed percentage of indigenous content (IC) which ranges from 30 to 60 per cent, depending on the procurement category. Avery complex method for calculating the IC was proposed in the draft DPP 2020. It has now been simplified.

Under the simplified system, apart from the prime vendor, the extent of indigenous content will have to be reported by his sub-vendors only if the base contract price of the contract between two exceeds Rs 10 crore or5 per cent of the base contract price of the prime vendor. This should come as a big relief to those few foreign vendors who do not get covered by the exemption.

While these major changes are significant, several minor procedural changes that have been made in this humongous document may turn out to be more important as it is the latter which will determine how swiftly a proposal moves through the long procurement cycle which starts with the issuance of Request for Information and ends with the award of the contract. Hopefully, there are no surprises there.