New defence acquisition policy to come into force from October 1

Source: Business Standard, Sept 29, 2020

New Delhi: Defence Minister Rajnath Singh on Monday unveiled the new Defence Acquisition Procedure of 2020 (DAP 2020), which will govern the procurement of defence equipment from the capital budget. It will supersede the Defence Procurement Procedure of 2016 from October 1.

Taking its cue from the prime minister’s Atmanirbhar Abhiyan (self-reliance campaign), DAP 2020 reserves several procurement categories for indigenous firms. “The categories of Buy (Indian designed, developed and manufactured), Make I, Make II… and SP model will be exclusively reserved for Indian vendors…,” stated the MoD on Monday.

DAP 2020 defines an “Indian vendor” as a company that is owned and controlled by resident Indian citizens, with foreign direct investment (FDI) not more than 49 per cent.

The new policy introduces a significant new procurement category called “Buy (Global–Manufacture in India).” This stipulates indigenisation of at least 50 per cent of the overall contract value of a foreign purchase — for example fighter aircraft — bought with the intention of subsequently building it in India with technology transfer. Meeting the difficult indigenisation requirement would force the vendor to build the equipment in India, rather than supply most of it ready-built from abroad.

This category also encourages vendors to set up facilities in India to manufacture spares and assemblies for the basic equipment, and to set up maintenance, repair, and overhaul (MRO) facilities. With the FDI cap recently raised to 74 per cent, the foreign vendor could do this through a joint venture (JV) firm in India.

The new procedure promotes greater indigenous content in arms and equipment of the military procures, including equipment manufactured in India under licence. In most acquisition categories, DAP-2020 stipulates 10 per cent higher indigenisation than DPP 2016.

For the contentious business of measuring indigenous content, DAP 2020 has instituted a simple benchmark. “Indigenous content will now be calculated on ‘Base Contract Price’, that is Total Contract Price, less taxes and duties,” stated the MoD. The “import embargo list” of 101 items that the government promulgated last month has been specifically incorporated into DAP 2020.

The new policy seeks to curb the long-running equipment trials the military carries out on equipment offered for procurement. “DAP 2020 emphasises the need to conduct trials with an objective to nurture competition based on the principles of transparency, fairness and equal opportunities to all and not as a process of elimination,” stated the MoD.

There are also important changes in the “Make” procedure, under which the MoD reimburses Indian vendors a percentage of the cost they incur on developing equipment.

The Make-1 procedure now incorporates a limit per vendor of Rs 250 crore and reimburses only 70 per cent of the development cost, as compared to 90 per cent in DPP 2016. Under the Make II procedure, defence companies themselves fund the development of equipment to offer the military.

DAP 2020 incorporates a new Make III procedure in which indigenous firms manufacture equipment, platforms or spares for import substitution.

Offsets

DAP 2020 features important changes in the offset guidelines, which under current norms, require vendors who win contracts worth over Rs 2,000 crore to plough back 30 per cent of the contract value into designated defence R&D, manufacturing and services. The new policy exempts vendors from offset liability in contract processed under the government-to-government route, as was the Rafale purchase or most contracts concluded with Russia. Nor will offsets be imposed on single-vendor purchases.

Under the new offset policy, “preference will be given to manufacture of complete defence products over components”, states the MoD. In addition, multipliers have been introduced to direct offsets to chosen sectors, e.g. micro, small, and medium enterprises (MSMEs). The new procedure has been drawn up by a review committee headed by the acquisition chief of the Ministry of Defence (MoD), Apurva Chandra. Reacting to the new policy, the Confederation of Indian Industry stated: “DAP 2020 is expected to provide a major boost to the Indian industry… It mandates the MOD to engage with the Indian industry during early stages of capability planning.”

Govt permits up to 74% FDI under automatic route in defence sector

Source: The Economic Times, Sept 17, 2020

NEW DELHI: The Department for Promotion of Industry and Internal Trade (DPIIT) on Thursday issued a press note permitting foreign direct investment (FDI) in defence production above 74 per cent on the automatic route. This would be subject to access to modern technology or for ‘other reasons’ that needs to be recorded.

FDI in defence production is automatic upto 74 per cent, the department said.

Till now, 100 per cent foreign investments were permitted in the defence industry – 49 per cent under the automatic route and government approval was required beyond that.

The press note has stipulated that foreign investments in the defence sector would be subject to scrutiny on the grounds of national security and the government reserves the right to review any foreign investment in the sector that affects or may affect national security.

As per the Press Note 4 (2020 series), FDI up to 74 per cent under automatic route shall be permitted for companies seeking new industrial licences.

DPIIT also said that infusion of fresh investment up to 49 per cent in a company not seeking industrial licence or which already has government approval for FDI in defence, shall require “mandatory” submission of a declaration with the defence ministry in case change in equity/shareholding pattern or transfer of stake by existing investor to new foreign investor for FDI up to 49 per cent within 30 days of such change.
“Proposal for raising FDI beyond 49 per cent from such companies will require government approval,” it added.

The government has retained the condition that investee company should be structured to be self-sufficient in the areas of product design and development. “The investee/joint venture company along with the manufacturing facility, should also have maintenance and life cycle support facility of the product being manufactured in India,” it said.

Licence applications will be considered and licences given by the DPIIT in consultation with Ministry of Defence and Ministry of External Affairs.

The decision will take effect from the date of Foreign Exchange Management Act notification.

Rajnath meets Russian counterpart, discusses ways to deepen defence ties

Source: Business Standard, Sept 04, 2020

Defence Minister Rajnath Singh on Thursday met his Russian counterpart General Sergey Shoigu in Moscow wherein the duo discussed about strengthening defence and strategic cooperation between both the two countries.

“Excellent meeting with the Russian Defence Minister General Sergey Shoigu in Moscow today. We talked about a wide range of issues, particularly how to deepen defence and strategic cooperation between both the countries,” said Rajnath Singh in a tweet.

Singh reached Moscow on Wednesday on a three-day visit to Russia to attend the combined meeting of Defence Ministers of Shanghai Cooperation Organisation (SCO).

Meanwhile, Defence Secretary Dr Ajay Kumar held a meeting with Dmitry Shugaev, Director, Federal Service of Military-Technical Cooperation, Russia.

According to a tweet by Russian Embassy in India, Russian Defence Minister Sergey Shoigu thanked Defence Minister of India Rajnath Singh for visiting Moscow in June and highlighted colossal potential of collaboration between Russia and India. “Military and military and technical cooperation were discussed.”

Minister of State for External Affairs, V Muraleedharan spoke at the India-Russia Young Scholars International e-Conference 2020 on the 20th anniversary of India-Russia Strategic Partnership.

“The time tested India-Russia relationship is based on unparalleled mutual trust and respect, common interests and concurrence on fundamental issues of global affairs,” he said in a tweet.

“The dynamism of the India-Russia relationship has propelled the bilateral cooperation beyond the traditional areas to almost all sectors of the economy benefitting the people of both countries. Our trade has also increased by 40,” he added.

Government working on giving shape to new air defence command by October: Sources

Source: The Economic Times, Aug 27, 2020

New Delhi: The defence ministry is likely to make an announcement in October on setting up of a new air defence command under the broad principle of convergence among the three services, people familiar with the development said on Thursday. The new air defence command will handle certain air assets like missiles of the Indian Army, they said.

A high-level committee was appointed earlier this year to frame contours of the new air defence command with a focus on ensuring jointness among the three services.

The initiative was part of Chief of Defence Staff Gen Bipin Rawat‘s mandate to redesign all existing military commands to help them effectively deal with all future security challenges.

It is learnt that the air defence command is likely to based in an area under the IAF’s Delhi-headquartered Western Command or its Central Command headquartered in Prayagraj in Uttar Pradesh.

The Air Defence Command will bring all the air assets of the IAF, the Indian Navy and the Indian Army.

In one of his first decisions, Chief of Defence Staff Gen Rawat in January issued directions to prepare a roadmap by June 30 to create the Air Defence Command to further enhance security of India’s skies.
The move was part of efforts to bringing in tri-services jointness and synergy include setting up of common “logistics support pools” in stations where two or more services have their presence.

In the last few months, Gen Rawat has held a series of meetings with the IAF brass in giving shape to the air defence command.

Gen Rawat took charge as the country’s first Chief of Defence Staff on January 1 which was seen as a watershed moment for India’s military planning to bring in convergence among the three services.

The newly created department of military affairs (DMA) under Gen Rawat is coordinating implementation of all the futuristic projects including redesigning of existing commands.

The DMA is also working on a proposal to have a peninsula command which is likely to be formed by merging the Indian Navy’s eastern and western commands.

As per plan, the tri-services command under a naval commander will have air assets as well as support of the Army, and it will take care of entire responsibility of maritime security challenge in the Indian Ocean Region.

Opening a new chapter in India’s military aviation, five Rafales touch down

Source: LiveMint.com, Jul 29, 2020

Five French-built multi-role Rafale aircraft touched down at the Indian Air Force (IAF)’s Ambala station on Wednesday, opening a new chapter in India’s military aviation history and bolstering India’s defence capabilities.

The Rafales’ landing in India on Wednesday comes almost four years after India signed an agreement with France to procure 36 jets under a ₹59,000-crore deal. It also comes 23 years after India inducted the Russian designed Sukhoi aircraft and 19 years after India first started its search for a state of the art fighter jet to replace the MiG-21 squadrons decommissioned over the years.

The aircrafts’ landing in India coincides with India’s ties with China have frayed due to tensions along the border and the Indian military being vary of the possibility of a two front war with China and Pakistan. It also comes at a time when India is looking to emerge from the economic aftereffects of a stringent lockdown in April-May by attracting investors and firms looking to decouple their supply chains from China. Despite the lockdown and associated uncertainties, India managed to draw almost $ 20 billion in investments and pledges between April-July – in what is seen as a vote of confidence in the Indian economy.

“The Birds have landed safely in Ambala. The touchdown of Rafale combat aircrafts in India marks the beginning of a new era in our military history. These multirole aircrafts will revolutionise the capabilities of the @IAF_MCC,” Defence Minister Rajnath Singh said in a Twitter post shortly after the first Rafale touched down at Ambala.

“I am extremely happy that IAF’s combat capability has got a timely boost,” he said in a second post. In a not so subtle warning to Pakistan and China, the minister said:”I would like to add, if it is anyone who should be worried about or critical about this new capability of the Indian Air Force, it should be those who want to threaten our territorial integrity.”

“This aircraft has very good flying performance and its weapons, radar and other sensors and electronic warfare capabilities are amongst the best in the world. Its arrival in India will make the IAF much stronger to deter any threat that may be posed to our country,” Singh added.

Prime Minister Narendra Modi also welcomed the arrival of the Rafales on Wednesday.

The five jets include two twin seater trainer aircraft and three single seat aircraft. Besides Ambala, where the deployment of the Rafales is seen as a counter to the threat posed by Pakistan, a second squadron is to be stationed at the Hashimara in West Bengal to take on the threat from China.

With tensions on the border with China running high, the IAF is looking at integrating the Rafales with India’s existing air defence systems as quickly as possible. In a move to ensure speedy integration, the IAF has opted for the French HAMMER air-to-ground precision-guided weapon system. The jets come armed with the beyond visual range (BVR) air-to-air Meteor missile and 13 India specific enhancements – with the IAF billing it as a “gamechanger.”

With the Mig-27s decommissioned last year, he IAF is already down to just over 30 squadrons, far less than the sanctioned 42 required for a two-front war against Pakistan and China. Most of the jets in Pakistan’s inventory comprise US-made F-16s besides some Chinese-made JF-17s. China’s People’s Liberation Army Air Force has over 600 fourth generation and fourth generation-plus jets. China is also developing the fifth generation J-20 in competition with the US’s fifth-generation fighter jets such as F-22 and F-35 made by Lockheed Martin Corp.

“For each of Pakistan’s F-16 in the air, India has had to deploy two Sukhois,” said a person familiar with the matter, pointing to the F-16s superior radar and armaments like the beyond visual range air to air missiles. With the Rafales added to the Indian inventory, the equation changes in India’s favour, the person said adding “to match one Rafale in the air, Pakistan will have to scramble two F-16s.”

Manmohan Bahadur, a former IAF air vice marshal, and who is currently additional director general at New Delhi-based Centre for Air Power Studies think tank, rated the Rafales as “many leagues better than the F-16s and the JF-17s in terms of range, armaments and electronic warfare capability.”

Together with the S-400 system that India is buying from Russia, it is predicted to provide India with a major strategic edge in air defence capabilities.

The acquisition of the Rafale underscores India’s commitment to defence modernization,” said Harsh Pant, a professor of international relations at the London-based King’s College. “For many outsiders, India’s defence policy is ad-hoc and causes domestic political bickering,” he said. That the acquisition happened, shows the Modi government’s resolve to buy assets critical to national security and that it is willing to take political risks on this score, he said. Noting that Pakistan’s response to the Balakot air strike by India in February last year had shown India’s vulnerabilities in terms of numbers and quality of fighter aircraft, Pant said that technology especially air power needed to be cutting edge. In that sense, “the Rafales are a harbinger of modernization,” he added.

Finance Minister announces hike in FDI in defence production

Source: Business Standard, May 16, 2020

New Delhi: To boost Make in India in defence production, Finance Minister Nirmala Sitharaman on Saturday said FDI limit in defence manufacturing will be hiked to 74 per cent from 49 per cent while some weapons and platforms will be banned for imports.

Items banned for imports can only be purchased from within the country, she said presenting the fourth tranche of the economic stimulus package.

Also, there will be indigenisation of some imported spares, she said adding separate budget provisioning for domestic capital procurement will be done.

This, she said, will reduce the huge defence import bill.

Ordnance Factory Boards will be corporatised for better management and eventually get listed on the stock market, she said adding corporatisation is not privatisation.

For the time-bound defence procurement process and faster decision-making, project management unit (PMU) to support contract management will be set up. The FDI limit in the defence manufacturing under automatic route will be raised from 49 per cent to 74 per cent, she said.

New defence procurement policy gets mixed reaction from industry

Source: Business Standard, Apr 06, 2020

New Delhi: The defence industry has expressed mixed reactions to the proposed Defence Procurement Procedure of 2020 (DPP-2020), which the Ministry of Defence (MoD) released in draft form on February 20.

The MoD has invited suggestions and recommendations by April 17. After that, DPP-2020 will be promulgated and will govern all acquisitions initiated thereafter. It will supersede DPP-2016 as the MoD’s handbook for purchasing of weapons, warships and equipment from the defence capital budget.

A Business Standard survey of small, medium and large defence firms reveals broad agreement that DPP-2020 has been hurriedly finalised and uploaded. Important annexures and appendices have been left out and even page numbering has not been done.

Like successive DPPs since the first in 2002, the draft DPP-2020 is longer and more complex than any other that preceded it. This despite the MoD’s stated aim of simplifying acquisition procedures to speed up the military’s modernisation. A 719-page long, the draft DPP-2020 is far wordier than its predecessor — the 430-page DPP-2016, which has, over the past four years, been amended 47 times for business process reengineering.

This is so, even though the draft DPP-2020 excludes an entire chapter on the Strategic Partnership Model of procurement since no changes are being recommended to the version in DPP-2016.

Abhishek Jain of software firm Zeus Numerix sees a change of soul in DPP-2020. Unlike previous DPPs, which he says primarily laid out guidelines on procuring foreign equipment, this time around there is a full chapter on indigenous innovation, including how single vendor purchase is acceptable for an innovative product developed by an Indian company, which has 50 per cent indigenous content.

However, Rahul Chaudhry, former chief of Tata Power (Strategic Electronics Division), believes the 2020 draft scatters its focus on various government policies at the cost of practicality. DPP-2020 aims to implement Make in India, Start Up India and support to micro, small and medium enterprises. These policies should be left to other government agencies such as the Department of Industrial Policy and Promotion, Securities and Exchange Board of India, and the Technology Development Board. These agencies, with their specialised capabilities, must be allowed to implement these national policies without MoD interference. This will make the DPP simpler and implementable, says Chaudhry.

There is appreciation across the industry for DPP-2020’s proposed enhancement of indigenous content requirements in foreign procurements, most of which have been raised by 10 per cent. This increase will boost self-reliance, allow a greater role for the indigenous defence manufacturing ecosystem and reduce the life cycle cost of the foreign equipment we buy, said Jayant Patil, who oversees L&T’s defence vertical and heavy engineering division.

While there is appreciation for some of the proposed measures to expedite equipment procurement — such as simplifying the procedure for accord of necessity (AoN) for procurements — there is broad dismay that DPP-2020 does not reduce procurement time frames. The target for completing the acquisition of an equipment remains 70-126 weeks, in addition to the time required for the military to frame the requirement and obtain AoN from the MoD.

The current 92 week deadline for a Make-1 category prototype development contract is too high. If we cut procurement time the vendors would be able to reduce prices by 10-20 per cent, says Jain of Zeus.

Ashok Atluri of Zen Technologies believes procurement could be speeded up by building transparency into the process, through measures like publicly posting the movement of the procurement file. He suggests the laying down of stringent penalties for vendors who are found to have overstated indigenisation levels.

Atluri also points to positives in DPP-2020, such as a new clause that allows the MoD to fall back on the second-lowest cost vendor (L-2), if the lowest cost (L-1) vendor backs out during cost negotiations.

Rajesh Dhingra, who heads RNaval, applauds the newly introduced option to lease equipment, where purchase would be too expensive and cost-ineffective. Leasing will spare funds for capital acquisition. But DPP-2020 should identify the role of local industry in leasing cases, specifying responsibility for maintaining, operating and training, he said.

Others believe leasing should be approached with caution, being a potential debt trap. Increased liabilities from leasing, including embedded interest pay out, could cut the capital funds available for fresh contracts, says L&T’s Patil.

“Increased liabilities from leasing, including embedded interest pay out, could cut the capital funds available for fresh procurement contracts,” says L&T’s Patil.

The new offset rules remain an area of concern for industry, with DPP-2020 proposing to exempt government-to-government (G2G) purchases from offsets. “With the lion’s share of the capital budget going on G2G procurements, this will cut down offsets significantly,” said Dhingra. There is also concern that the DPP-2020 reduces government funding for “Make-I” category procurements, in which indigenous firms develop complex platforms and systems, with financial support from the MoD. Till 2016, the government’s share of funding for “Make I” projects was 80 per cent and DPP-2016 increased that to 90 per cent. DPP-2020, however, proposes to slash government funding to just 70 per cent. “This would dissuade our defence industry from participating in large platform development programmes, where the prototype development cost exceeds a few hundred crore,” says Patil.

India, US sign $3 bn deal for military helicopters

Source: The Economic Times, Feb 26, 2020

New Delhi: India and the US on Tuesday signed a $3 billion military helicopter deal during President Donald Trump’s visit. The clearances for the pact were rushed through in anticipation of the high-profile visit.

The US President described the deal for 24 MH-60 Sikorsky Romeo multi-role helicopters and six Apache attack choppers as a highlight of the visit and said it would contribute to interoperability.

“Earlier today, we expanded our defence cooperation with agreements for India to purchase more than $3 billion of advanced American military equipment, including Apache and MH-60 Romeo helicopters. These deals will enhance our joint defence capabilities as our militaries continue to train and operate side by side,” Trump said. Read the rest of this entry »

BHEL signs pact with Russian firm to undertake joint defence projects

Source: Business Standard, Feb 12, 2019

New Delhi: State-run engineering firm BHEL on Wednesday said it has signed a pact with Rosoboronexport, Russia, for cooperation and undertaking projects for defence systems.

The memorandum of understanding (MoU) was signed during the 5th India Russia Military Industrial conference held in Lucknow, BHEL said in a statement.

The aim of the MoU is to cooperate and undertake joint projects and operations for defence systems. This will help in leveraging BHEL’s capabilities in the defence sector in association with Russian OEMs under the Make in India’ initiative and offer indigenous support and solutions to the Indian defence forces, it added.

India now exports defence products to 42 countries

Source: LiveMint.com, Feb 10, 2019

New Delhi: India may be a big importer of defence equipment but has been making steady progress in exports of such products to a number of countries including those who are big names in the export market like the US, Australia, Finland, France, Germany, Israel, South Africa and Sweden.

These countries are in the list of 42 nations that also included Azerbaijan, Seychelles, Estonia, Indonesia, Guinea and the Philippines.

Minister of State for Defence, Shripad Naik, in a written reply to Rajya Sabha on Monday said the “cost of the items and quantum of foreign exchange earned varies from company to company” and the ministry did not keep a record of the quantum of foreign exchange earned. Read the rest of this entry »