1-Aug-2022: Self-Reliance in Defence Production

The Government has taken several policy initiatives in the past few years and brought in reforms to encourage indigenous design, development and manufacture of defence equipment, thereby promoting self-reliance in defence manufacturing & technology in the country. These initiatives, inter-alia, include according priority to procurement of capital items from domestic sources under Defence Acquisition Procedure (DAP)-2020; Announcement of 18 major defence platforms for industry led design & development in March 2022; Notification of  three ‘Positive Indigenisation Lists’ of total 310 items of Services and  two ‘Positive Indigenisation Lists’ of total 2958 items  of Defence Public Sector Undertakings (DPSUs), for which there would be an embargo on the import beyond the timelines indicated against them; Simplification of Industrial licensing process with longer validity period; Liberalization of Foreign Direct Investment (FDI) policy allowing 74% FDI under automatic route; Simplification of Make Procedure; Launch of Innovations for Defence Excellence (iDEX) scheme involving start-ups & Micro, Small and Medium Enterprises (MSMEs); Implementation of  Public Procurement (Preference to Make in India) Order 2017; Launch of  an  indigenisation  portal  namely SRIJAN to facilitate  indigenisation  by Indian Industry, including MSMEs; Reforms in Offset policy with thrust on attracting investment and Transfer of Technology for Defence manufacturing by assigning higher multipliers; and Establishment of two Defence Industrial Corridors, one each in Uttar Pradesh and Tamil Nadu; Opening up of Defence Research & Development (R&D) for industry, start-ups and academia with 25 per cent of defence R&D budget; Progressive increase in allocation of Defence Budget of military modernization for procurement from domestic sources, etc.

Three Positive Indigenisation Lists comprising of 310 (101+108+101) items were promulgated by Department of Military Affairs (DMA), Ministry of Defence on 21st August 2020, 31st May 2021 & 7th April 2022 respectively. In addition, to minimise import by Defence Public Sector Undertakings (DPSUs), Department of Defence Production (DDP), MoD has notified two Positive Indigenisation Lists (PIL) of sub-systems/assemblies/sub-assemblies/ components on 27th December 2021 & 28th March 2022 respectively. The 1st list contains 2,851 items out of which 2,500 items have already been indigenised. The 2nd PIL consists of 107 strategic important Line Replacement Units/major sub-assemblies.

All these lists have been placed in the public domain on the website of MoD/SRIJAN Defence portal of Ministry of Defence. These lists include wide range of defence products including Light Tanks, Helicopters, Unmanned Aerial Vehicles etc. for which there would be an embargo on the import beyond the timelines indicated against them.

1-Aug-2022: Mandatory Procurement from MSMEs for Defence Establishments

The Government has taken the following policy initiatives for promotion of Micro, Small & Medium enterprises (MSMEs) in defence sector:

• In the Defence Acquisition Procedure 2020, there are specific reservations on Orders up to Rs 100 crore/year for MSMEs.
• An innovation ecosystem for Defence titled Innovations for Defence Excellence (iDEX) has been launched in April 2018. iDEX is aimed at creation of an ecosystem to foster innovation and technology development in Defence and Aerospace by engaging Industries including MSMEs, Start-ups, Individual Innovators, R&D institutes and Academia and provide them grants/funding and support to carry out R&D which has potential for future adoption for Indian defence and aerospace needs.
• The Defence Offset guidelines have further paved the way for proactive participation of MSMEs of India by incorporating a scheme of multipliers of 1.5 for engaging MSME as Indian Offset Partners (IOP), which promotes their integration in global supply chain.
• MSMEs are important partners in DRDO projects and DRDO transfers technologies to them. They are important partners in industry ecosystem for the production of DRDO developed products. DRDO through its scheme Technology Development Scheme (TDF) funds industries, especially Start-ups and MSMEs up to an amount of Rs 10 crore, for innovation, research and development of Defence Technologies in the field of Defence and Aerospace.
• Public Procurement Policy for MSEs Order 2012, notified by Ministry of Micro, Small & Medium Enterprises has also been adopted by all Defence PSUs.
• Department of Defence Production(DDP) conducts outreach programs in various parts of the country to interact with Industry Associations, Industry, especially MSMEs and academia, to spread awareness about the potential export opportunities. A scheme aimed to promote MSMEs in defence is in place. Under this scheme, conclaves/seminars are being organized in Tier-II and Tier-III cities across the country having strong industrial MSMEs presence with the support of the DDP.
• Regular interactions are taking place to settle the grievance of vendors at DPSUs. Defence Investor Cell has been opened in DDP to address the issues being faced by vendors especially MSME vendors.

Further, 137 contracts have been signed for capital procurement of defence equipment with Indian vendors including MSMEs. No separate data for MSMEs is centrally maintained in this regard.

Details of the annual procurement of general goods and services from MSEs including SC/ST and Women by the Ministry of Defence are given as under:

25-Apr-2022: Defence Acquisition Procedure 2020 amended to promote ‘Make in India’ & ‘Aatmanirbharta’ in defence

To further promote ‘Make in India’ and ‘Aatmanirbharta’ in defence and enable Ease of Doing Business, Defence Acquisition Procedure (DAP) 2020 has been amended based on the approvals accorded by Defence Acquisition Council (DAC) in respect of the following:

Going forward all modernisation requirements of the Defence Services and Indian Coast Guard are to be indigenously sourced irrespective of the nature of procurement. Import of defence equipment/sourcing from Foreign Industry of capital acquisitions should only be an exception and undertaken with specific approval of DAC/Raksha Mantri.

As advised by Ministry of Finance and to reduce financial burden on the Indian Defence Industry whilst maintaining financial safeguards, requirement of Integrity Pact Bank Guarantee (IPBG) has been dispensed with. Instead, Earnest Money Deposit (EMD) will be taken as a bid security for all acquisition cases with Acceptance of Necessity (AoN) cost more than Rs 100 crore. EMD will be valid for the selected vendor up to signing of contracts and returned to remaining vendors post declaration of selection. Post contract, Integrity Pact will be covered through the Performance Cum Warranty Bank Guarantee (PWBG). Further, as per extant Government of India policy, EMD is not required from Micro and Small Enterprises (MSEs).

To encourage wider participation and broad base indigenous defence manufacturing sector in the country, the total order quantities in acquisition cases are to be split between shortlisted vendors, wherever viable. Further, the other technically qualified bidders who have not been awarded contract will be issued a certificate by the Services indicating that the product has been successfully trial evaluated, to facilitate vendors to explore other markets.

To create an ecosystem which fosters innovation and encourages technology development in Defence by engaging R&D institutes, academia, industries, startups and individual innovators, the iDEX framework was launched by Prime Minister Shri Narendra Modi in April 2018. Existing provisions of DAP 2020 links the procedures of Staff Evaluation, CNC and award of Contract for iDEX procurement, to the procedure in 'Buy (Indian- IDDM)', which entails a long period of approximately two years before placement of the order. To enable the budding startup talent pool of the country to contribute towards the twin mantras of self-sufficiency and indigenization, the procurement process under iDEX procedure of DAP 2020 has been simplified. With this simplification, time taken from grant of AoN to signing of contract will be reduced to 22 weeks.

Make-II procedure of DAP-2020, involving indigenisation of defence equipment through industry funded projects at prototype development stage, has been simplified by incorporating Single Stage Composite Trials of prototypes and dispensing off with quantity vetting and scaling for initial procurements in the delegated cases. Post simplification, the timelines in Make-II procedure will be reduced to 101-109 weeks from an existing total time-period of 122-180 weeks.

4-Apr-2022: New procurement policy

Ministry of Defence, after holding stakeholder consultations with Industry Associations, Think Tanks, Services and other government agencies, promulgated Defence Acquisition Procedure (DAP)-2020 with effect from 01 October 2020. Following are the salient features of DAP-2020 promoting ‘Aatmanirbhar Bharat’ and ‘Make in India’:

• Notification of positive indigenisation lists in respect of weapons/platforms to ensure that equipment as mentioned in the list is not procured ex-import post prescribed timelines.
• Highest priority to procurement under Buy (Indian-Indigenous Design, Development & Manufacture[IDDM]) category.
• Indigenisation of imported spares through Make-III process introduced with the aim of enhancing self-reliance through import substitution.
• Reservation for MSMEs and small shipyards for orders up to Rs 100 crore/year.
• Increased Indigenous Content (IC) in various categories of procurement under DAP-2020.
• Reservation for Indian Vendors with ownership and control by resident Indians in procurement under the categories viz. Buy (Indian-IDDM) [Chapter-2], Make-I & Make-II [Chapter-3] and Strategic Partnership (SP) Model [Chapter-7] of DAP-2020.
• Introduction of new category of Buy (Global-Manufacture in India) to give push to ‘Make in India’ initiative of the Government.

To provide further impetus to domestic defence industry, Defence Acquisition Council (DAC) has approved on 22 March 2022 following amendments in DAP-2020:

• It has been decided that any import of defence equipment/sourcing from Foreign industry, irrespective of value and type of acquisition should only be an exception requiring specific approval of DAC/Raksha Mantri.
• To reduce financial burden on Indian Industry Integrity Pact Bank Guarantee (IPBG) has been dispensed with. Earnest Money Deposit (EMD) has been introduced as a bid security and Pre-Contract Integrity Pact (PCIP) cover till conclusion of contract. Post conclusion of contract, Performance cum Warranty Bank Guarantee (PWBG) to provide the PCIP cover. For projects upto Rs. 100 crore and for MSMEs & start-ups, EMD requirement has been waived.
• Procedure for acquisition through iDEX and Make-II has been simplified with compression of timelines.

14-Mar-2022: New process for procurement of defence equipment

The revision of procedure for Defence Capital Acquisitions as given in DPP-2016 was undertaken incorporating comments/suggestions of a wide spectrum of stakeholders and accordingly, Ministry of Defence promulgated the Defence Acquisition Procedure 2020 (DAP 2020) with effect from 01st October, 2020.

To bring transparency & speed in defence acquisitions, following steps have been taken:

1. For cutting down time frames:
   • Single stage grant of AoN,
   • Delegation of approvals/financial powers,
   • Simplification of trials process, and
   • Integrated and joint approach in D&D cases.
2. To promote probity, public accountability and transparency in defence capital procurements:
   • Pre Contract Integrity Pact (PCIP) for all cases above Rs 20 crore,
   • Time bound disposal of complaints,
   • Ascertaining vigilance status of L1 vendor before seeking approval of the Competent Financial Authority (CFA),
   • Notification of guidelines for Penalties in Business Dealings with suspect Entities,
   • Capacity Assessment guidelines for Shipbuilding Entities.

16-Sep-2021: Simplified Procedure for confirmation of Bank Guarantees of Foreign Banks in Capital Acquisitions under Defence Acquisition Procedure (DAP)- 2020

The Acquisition wing of Ministry of Defence has promulgated a Standard Operating Procedure (SOP) to facilitate clarity in procedure to be followed by the Buyer in respect of Bank Guarantees (BGs) submitted by the bidders from international banks. This will facilitate timely conclusion of contracts in procurement cases involving BGs from foreign banks.

For BGs from international banks, DAP provides right to the Buyer to seek confirmation of the BG from an Indian Bank, where required, at bidder’s cost. A SOP has been issued on the steps to be followed by the Buyer for seeking advice of SBI, Parliament Street Branch, New Delhi with regard to the requirement of confirmation of such BGs. If required, the confirmation of foreign bank’s Bank Guarantees will be through a counter-guarantee by an Indian Public or Private Scheduled Commercial Bank at the bidder’s cost.

The Defence Acquisition Procedure (DAP) 2020 provides for submission of various Bank Guarantees (BGs) viz. Advance Payment Bank Guarantee (APBG), Additional Bank Guarantee (ABG), Performance cum Warranty Bank Guarantee (PWBG) etc. by the Sellers for discharge of various contractual obligations. These BGs can be from any Indian Public or Private Scheduled Commercial Bank (as notified by RBI) or First Class banks of international repute.