In a landmark move, the Ministry of Defence has restructured its revenue procurement rules to provide significant relief to defence companies struggling with R&D delays. Companies engaged in prototype development for the armed forces will no longer face fines or liquidated damages during the research stage, easing pressure on private and public manufacturers investing in indigenous technologies, reported Manu Pubby of ET News

The government has also scaled down penalties for delays after the development stage. Liquidated damages post-prototype will now start at a minimal 0.1%. The maximum LD has been halved to 5%, with a higher 10% cap introduced only for inordinate delays. This change brings a more realistic penalty regime aligned with the complexities of developing cutting-edge defence systems.

One of the most critical reforms is the assurance of orders for companies for at least five years. This provision guarantees stability and visibility for production pipelines. Under certain circumstances, the guarantee period may be extended to as long as 10 years, giving industry stakeholders long-term confidence to invest in production capacities.

The rules are particularly significant given that revenue procurement—covering ammunition, spares, and stores—accounts for nearly ₹1 lakh crore annually. The new manual simplifies and streamlines procurement procedures, ensuring alignment with modern practices in public procurement and addressing long-pending concerns of both the armed forces and domestic defence firms.

The revised manual marks the first major overhaul since 2009, carried out under Defence Minister Rajnath Singh’s "year of reforms" initiative. The changes specifically benefit the private sector, which often struggled to meet stringent prototype development timelines due to supply chain constraints and evolving user requirements.

In parallel, a separate process is underway to revamp the Defence Acquisition Procedure (DAP) governing capital purchases. An expert panel is expected to submit its final recommendations by December, pointing to an integrated reform package that will reshape both revenue and capital procurement structures in the coming months.

Timeline of Key Procurement Reforms

2009 – Last Manual Revision

The previous revenue procurement manual was issued in 2009.
Since then, defence firms raised concerns about harsh penalties, long delays, and lack of stability in orders.

2023–2024 – Industry Demands Relief

Private industry flagged difficulties in prototype development.
Supply-chain disruptions and evolving specifications led to delays.
Companies were often penalised heavily, discouraging investment.

2025 – Year of Reforms Initiative

Defence Minister Rajnath Singh launched a comprehensive overhaul of defence procurement policies.

Two separate tracks began:

Revenue procurement reforms
Capital procurement reform under Defence Acquisition Procedure (DAP)

September 2025 – Major Rule Overhaul Announced

Government abolishes all LD penalties during R&D stage.
Post-development LD capped at 0.1% as minimal levy.
Maximum LD halved to 5%, only 10% in extreme cases.
Defence firms to receive assured orders for 5 years, extendable to 10 years in special cases.
Procurement manual modernised to simplify procedures and align with public procurement standards.

December 2025 – Capital Procedure Reforms Due

Expert panel scheduled to submit final report on modernising DAP.
This will cover big-ticket defence acquisitions in tandem with revenue reforms.

Based On ET News Report