Defense procurement

Defence Procurement, Change in Rules, IDDM etc

1. TOPIC: Defence Procurement This PPT is for classroom learning purpose only. Learners/Aspirants are expected to supplement the lecture with the ppt. Aspirants are also expected to go through standard Material. The content is taken from various daily and weekly publications. Due care has been taken in preparing the material but the tutor or the Institute would not be responsible for any error or consequences arising out of it. Suggestion(s)/correction(s)/feedback is/are welcome at [email protected] By: Harveer Singh

2. Issues in Defence Procurement for India Black Listing of the Firms due to Corruption Cases. Technology Shortcomings Opaque Procurement process due to sensitive technology Lack of Market price signalling leading to corruption Lack of Indigenous research, design and development. 2 HARVEERSIR for GSSCORE

3. 3  India remains the world’s largest importer of arms, importing 14% of global imports of weaponry between 2011-2015. India’s primary supplies are Russia, Israel, France, and the United States. The government of India is looking to reduce dependency on foreign arms manufacturers and to catalyze domestic manufacturing capabilities. The ‘Make in India’ initiative is seen as a launch pad for the structural and regulatory changes needed to boost India’s defence-industrial base. HARVEERSIR for GSSCORE

4. Dhirendra Singh Committee (May 2015) 4 HARVEERSIR for GSSCORE

5. Dhirendra Singh Committee..contd.. 5 The committee proposed three models for cooperation with the private sector: Strategic Partnerships, Developmental Partnerships and Competitive Partnerships. Within this model, there would be six groups of Strategic Partnerships : aircraft, warships, armored vehicles, complex weapons, surveillance, and critical materials.   In order to prevent “conglomerate monopoly,” the Committee suggests identifying one or two private sector companies for each of the six Partnerships to limit competition. The committee also recommended ending the practice of single bid rejections. HARVEERSIR for GSSCORE

6. Dhirendra Singh Recommends: # Strategic Partnership Model 6 Strategic is like RUR ( Raksha Udhyog Ratna ) Only one SP should be permitted in one segment. Based on the recommendations of Kelkar Committee HARVEERSIR for GSSCORE

7. Dhirendra Singh Committee..contd.. Emphasis on Greater Indigenisation 7 Make in India’ should not “become assemble in India with no IPR [intellectual property rights] and design control and thereby perpetuating our dependence on the foreign suppliers.” To guard against such a situation, the experts group has emphasised on progressively increasing the indigenisation content Single window clearances and faster processes to obtain industrial licences have also been proposed. HARVEERSIR for GSSCORE

8. Dhirendra Singh Committee..contd.. 8 Industry Friendly Procurement : Streamlining the acquisition process and structure so as to create more opportunities. It also recommended for Conducive Financial Framework. Calls for a level playing field for the private sector by way of bank guarantees, payment terms, taxes and duties. HARVEERSIR for GSSCORE

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10. ## Raksha Udyog Ratna (RUR) concept While making their demand to Kelkar Committee (2004-06) Industry wanted be treated at par with the public sector as regards receipt of imported technology, fulfilment of offset obligations and joint development with Defence Research and Development Organisation. Govt gave it a go ahead with the concept of Raksha Utpadan Ratnas (RUR) The Selection Committee of RUR was constituted in May 2006 under Mr Prabir Sengupta . Committee gave its recommendations and the report is under review  10 HARVEERSIR for GSSCORE

11. 11 the ‘strategic partnership model’ (SPM) with the Indian private sector for the platforms, weapons, networks and materials is significant. This will enable private companies to front-end and manage complex defence projects at par with DPSUs. It calls for a focus on private sector R&D. HARVEERSIR for GSSCORE

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13. VK Aatre Task Force 2016 13 Related to Strategic Partnership Dhirendra Singh Committee had also suggested the setting up of a Task Force to “lay down the criteria in details for selection of SPs VK Aatre Task Force deals with the detailed criteria for selecting Strategic Partners (SPs)  HARVEERSIR for GSSCORE

14. 10 segments in two groups from which SPs would be selected 14 for Group-I, the Task Force has suggested the selection of only one SP in each segment, whereas the number can go up to two in Group-II segments. HARVEERSIR for GSSCORE

15. Financial Norms 15 For Group-I A consolidated turnover of Rs. 4,000 crore for each of the previous three years, Consolidated capital assets of Rs. 2,000 crore in the last financial year, Consolidated revenue growth of a minimum of five per cent in at least three of the previous five years. For Group-II consolidated turnover and capital assets are Rs. 500 crore (last 3 Years) and Rs. 100 crore , respectively. HARVEERSIR for GSSCORE

16. Other Recommendations 16 technical norms : past performance, engineering and manufacturing capability, R &D culture, infrastructure facilities, HR structure and practices, quality control system etc. a maximum foreign direct investment (FDI) of 49 per cent. an independent regulator and a specialised wing in the MoD to deal exclusively with the chosen SPs. HARVEERSIR for GSSCORE

17. Critique 17 the Task Force has also limited the participation of SPs to ‘Buy and Make’ contracts involving transfer of technology.  the SPs, in the present scheme of things, are not substitutes for the inefficient DPSUs and OFs SOURCE: IDSA HARVEERSIR for GSSCORE

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19. DPP 2016 19 Aim:To ensure timely procurement of defence (military) equipment, systems, and platforms required by the armed forces through optimum utilization of allocated budgetary resources . Scope: It will cover all capital acquisitions undertaken by the Union Ministry of Defence, Defence Services and Indian Coast Guard (ICG) both from indigenous sources and import. HARVEERSIR for GSSCORE

20. Capital Acquisitions Schemes. 20 Buy scheme : Outright purchase of equipment and procurements under BUY scheme are further categorized as Buy (Indian- IDDM), Buy (Indian), and Buy (Global). IDDM stands for Indigenously Designed Developed and Manufactured. Buy and Make Scheme : The procurements are categorized as Buy and Make and Buy and Make (Indian). Make category Scheme : It seeks developing long-term indigenous defence capabilities and procurements. It empowers Defence Acquisition Council (DAC) to take a fast-track route in order to acquire weapons, which were limited to the armed forces till now. HARVEERSIR for GSSCORE

21. 21 Procurement of defence equipment: Arranged in decreasing order of priority are categorized as ( i ) Buy (India-IDDM). (ii) Buy (Indian). (iii) Buy and Make (Indian). (iv) Buy and Make. (v) Buy (Global). Buy (India-IDDM) seeks to boost indigenous production. HARVEERSIR for GSSCORE

22. Upto 90% Government funding for private Research & Development (R&D) through Department of Defence Production. Recognition of the Micro, Small and Medium Enterprises (MSME) as technology developers. Offsetting from 300 crores to 2000 crores . *** Offseting push up cost by 16 % for the suppliers . Single BID procurement would now be considered. 22 HARVEERSIR for GSSCORE

23. 23 SHQ would be owning and would be responsible for MAKE projects. Long term Perspective Plan of 15 Years for “Make”. Make-PMU in at all SHQs and Cpast Guard. Make projects into two Categories: Make-I (Govt Funded) and Make-II (Industry Funded) Under Make-I: upto 90% Funding by the govt. MSMEs first right to undertake prototype of less than 10 crores . L-1 T-1 Method for Defence Procurement. HARVEERSIR for GSSCORE

24. 24 Thank You  HARVEERSIR for GSSCORE

25. 25 In 2015, the government issued 56 licenses that authorized multinational companies such as The Mahindra Group, The Tata Group, and Pipavav to set up production units. The reforms seem to have gained the confidence of the global defense industry, with $3.5 billion entering the Indian economy in foreign investments. In the first half of the 2015-16 , $64 million of military equipment purchased- a threefold increase over last year’s $19 million . 100% FDI under approval route. Source: Albright Stonebridge HARVEERSIR for GSSCORE