In a significant departure from India’s existing arms purchasing procedures, a new policy announced Monday has eliminated offsets in government-to-government agreements and single-vendor contracts for the purchase of military equipment, as it does not it has resulted in bringing cutting-edge technology to the country, said a senior official.
This overrides the compensation policy that required foreign suppliers to invest in the country to boost local capacities by at least 30% (could go up to 50%) of the value of all contracts worth more than Rs 300 million that were awarded to them.
The scope of the compensation policy will only be limited to military contracts that involve competitive bidding, CEO (procurement) Apurva Chandra said during a presentation on the new Defense Procurement Procedure-2020. The DAP-2020, approved by Defense Minister Rajnath Singh on Monday, will be effective from October 1.
“No compensation contract has led to the transfer of technology to the country, with the scope limited to the purchase of products as indicated by the Comptroller and Auditor General in a recent report. There will be no offsets in intergovernmental agreements, government-to-government agreements and ab initio single-vendor cases, ”said Chandra.
According to experts, eliminating offsets could generate savings, as foreign military contractors tend to increase their prices by about 10% to meet their offset commitments.
In a report presented in Parliament last week, the CAG said that various compensation contracts embedded in multiple defense agreements had failed to introduce high-end military technology into the country. The critical remarks were part of the state’s CAG scrutiny of a number of offset contracts, including the September 2016 Rafale deal, between 2005 and 2018.
Commenting on the Rs 59,000 crore Rafale deal, the lead auditor said that aircraft manufacturer Dassault Aviation and arms supplier MBDA have not confirmed the transfer of technology to the Defense Research and Development Organization (DRDO), which was part of the compensation contract. .
The CAG harshly criticized foreign suppliers who made various compensation commitments to qualify for a contract, but were later not serious about meeting their commitments.
The compensation guidelines have been revised to give preference to manufacturing complete defense products over components, the ministry said in a statement.
The DAP-2020 has been aligned with the vision of the Atmanirbhar Bharat government and with the empowerment of the national industry through the Make in India initiative, with the ultimate goal of turning the country into a global manufacturing hub, according to the statement. .
“The three key focus areas of DAP-2020 are Atmanirbhar Bharat, Make in India and ease of doing business. The procedure has five new chapters that include leasing, DRDO acquisition, and post-contract management, ”said Chandra.
The new arms procurement policy will allow the armed forces to lease military equipment for the first time, a move that could reduce costs associated with purchasing weapons and systems. The lease could be cheaper in the long term, Chandra said.
The new policy stresses that weapons and systems field evaluation trials will be conducted with the goal of encouraging competition rather than rejecting players for minor deficiencies. It seeks to increase local manufacturing and reduce lead times for the procurement of critical military equipment.
The new policy incorporates a price variation clause “for large and long contracts in order to avoid inflated initial quotes from suppliers and arrive at a realistic price for the project,” according to the defense ministry statement.
The policy has also introduced a new provision for the acquisition of weapons and systems: Purchase (Global — Manufacture in India). It stipulates that only a necessary minimum quantity of defense equipment will be purchased abroad and the rest will be manufactured in India.
“The new category incorporates the manufacture of all / part of the equipment or spare parts / assemblies / sub-assemblies and maintenance, repair and overhaul (MRO) for the equipment through its subsidiary in India,” the statement said.
The industry welcomed the new policy, saying it set the roadmap for a self-sufficient India.
“The DAP-2020 has created pragmatic avenues for foreign original equipment manufacturers (OEMs) to manufacture in India on their own and in collaboration with Indian industries. The DAP-2020 completes the triad of policy, organization and procedure to create a vibrant and capable national defense industry base and march towards self-sufficiency, ”said Managing Director of the Confederation of Indian Industry, Chandrajit Banerjee.
He added that for the defense sector, self-reliance was not just an economic necessity but also a strategic imperative.
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