A flawed defence procurement policy

A flawed defence procurement policy

Article

  1. In the backdrop of the recent Rafael controversy, the article discusses the issues with the offset guidelines of India’s defence procurement policy.

Important analysis:

Defence Procurement Procedure, 2016, (DPP):

  1.  It aims to develop world-class domestic defence and aerospace industry by promoting indigenous design, development and manufacturing of defence equipment, platforms, systems and subsystems. However, the offset guidelines in DPP have been hindrance to achieve this aim.

Offsets:

  1.  These are a portion of a contracted price with a foreign supplier that must be re-invested in the Indian defence sector, or against which the government can purchase technology.
  2.  Indian Offset Partner (IOPs) are defined as Indian enterprises engaged in making eligible products and/or services.

DPP Provisions empowering government:

  1. The government is given extensive control over selection of the offset partner.
  2. The government is empowered to evaluate offset proposals received in response to procurement tenders and conclude offset contracts.
  3. The DPP also provides that all offset proposals will be approved by the Union minister of defence, regardless of their value
  4. During the period of the contract, any change in the Indian offset partner will require the government’s approval.

Issues with offset investments/ procurements:

  1.  Offset investments/ procurements are not subjected to public procurement safeguards.
  2. DPP gives complete discretion on choice of the Indian offset partner (IOP)
  3. Further, the definition of IOP is flawed. Focuses more on ownership and not on investments. It is argued that Indian ownership does not necessarily ensure growth of a sector
  4. Procurement policy recognizes the need for domestic private partnership, it does not mandate a fair and diverse procurement process for offsets. Therefore, foreign suppliers tend to partner with just one or two large industrial groups to discharge their offset obligations.

Recommendations:

  1. Defence procurement should be subject to transparent processes to ensure all Indian companies, irrespective of their size are able to compete
  2. The focus should be on investments rather than ownership to ensure that companies of all sizes, including foreign companies who wish to manufacture in India, can grow and flourish
  3. Offset investments/procurement must be subject to public procurement safeguards
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