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DAILY NEWS ANALYSIS

  • 05 June, 2021

  • 20 Min Read

DAC nod for building 6 conventional submarines

DAC nod for building 6 conventional submarines

What is Defense Acquisition Council?

  • The Defence Acquisition Council is the highest decision-making body in the Defence Ministry for deciding on new policies and capital acquisitions for the three services (Army, Navy and Air Force) and the Indian Coast Guard.
  • The Minister of Defence is the Chairman of the Council.
  • It was formed, after the Group of Ministers' recommendations on 'Reforming the National Security System', in 2001, post-Kargil War (1999).

What is the news?

  • The Defence Acquisition Council (DAC), headed by Defence Minister Rajnath Singh approved the issuance of a Request For Proposal (RFP) for the construction of six conventional submarines under Project-75I at an estimated cost of? 43,000 crore.
  • At a meeting, it also approved the procurement of air defence guns and ammunition for the Army at an approximate cost of ? 6,000 crores.
  • This is a landmark approval, being the first case processed under the Strategic Partnership (SP) model. This would be one of the largest ‘Make in India’ projects and it will create a tiered industrial ecosystem for submarine construction in India.
  • With this approval, India would be enabled to achieve its 30-year submarine construction programme envisioned by the government to acquire national competence in their building and for the Indian industry to independently design and construct them, he noted.

What is the Strategic Partnership model?

  • The SP model of the Defence Procurement Procedure (DPP) aims to promote the role of Indian industry in manufacturing and build a domestic defence industrial ecosystem.
  • One company would be selected for each area based on its competence.
  • That company would then tie up with the foreign Original Equipment Manufacturer selected through the procurement process, to build the platform in India with significant technology transfer.

Advantages of SP model

  • It will boost private sector participation.
  • It will create domestic expertise in four key areas, namely, fighter aircraft, helicopters, submarines, armoured vehicles and main battle tanks.
  • It will enhance competition, increase efficiencies and facilitate faster and more significant absorption of technology.
  • It is also aimed at creating a tiered industrial ecosystem, triggering innovation and enabling participation in global value chains as well as promoting exports.

Concerns about the SP model

  • The Armed Forces feel that the SP model will block new technology and new players coming to the defence sector.
  • The existing defence players argue for committed orders for the next 30 years to give them economies of scale as defence involves large investments.

Defence Acquisition Procedure (DAP) 2020

  • Recently, a new Defence Acquisition Procedure (DAP) (erstwhile Defence Procurement Procedure or DPP), 2020 was released by the Ministry of Defence (MoD).
  • Defence Acquisition Procedure (DAP)-2020 envisages the basic tenets of ‘Aatmanirbhar Bharat Abhiyan’ and encourages indigenous designing and manufacturing of defence items. The proposals for indigenous design and manufacturing are considered under the ‘Make’ Procedure of DAP-2020.
  • The ‘Make’ Procedure aims to achieve the objective of self-reliance by involving greater participation of Indian industries including the private sector through the following mechanisms:
    1. Make-I (Government Funded): This involves the design and development of equipment, systems, major platforms or upgrades thereof by the industry. Ministry provides financial support up to 70% of prototype development costs or a maximum of Rs. 250 crores per Development Agency (DA).
    2. Make-II (Industry Funded): This includes design & development and innovative solutions by an Indian vendor, for which no Government funding is provided, but it has the assurance of procurement on successful prototype development.

Ongoing Defense Acquisition Procedures:

  • As of date, there are 4 ongoing projects under the Make-I category.
  • Further, 56 proposals have been accorded ‘Approval in Principal’ under the Make-II category out of which 23 proposals have been accorded Acceptance of Necessity (AON).
  • In addition, Defence Research and Development Organisation (DRDO) has also undertaken 233 projects during the past three years since 2018.
  • The projects include new defence equipment such as Cruise missiles, Hypersonic missiles, Anti-Ship missiles, Extended Range Anti-Submarine Rocket, a Mounted Gun System, ammunition, Electronic Warfare system, Radars, Torpedos, High Endurance Autonomous Underwater Vehicles, etc.
  • Further, in order to promote indigenous design and development of defence equipment ‘Buy {Indian-IDDM (Indigenously Designed, Developed and Manufactured)}’ category under DAP is accorded topmost priority for procurement of capital equipment.
  • Ministry of Defence has notified a ‘Negative list of 101 identified items for which there would be an embargo on the import beyond the timeline indicated against them. This is a big step towards self-reliance in defence.
  • This offers a great opportunity to the Indian defence industry to manufacture these items indigenously and develop capabilities to meet the requirements of the Armed Forces.
  • This list includes some high-technology weapon systems like artillery guns, assault rifles, corvettes, sonar systems, transport aircraft, light combat helicopters (LCHs), radars etc. to fulfil the needs of our Defence Services.
  • Further, an indigenization portal namely SRIJAN has also been launched in August 2020 for Defence Public Sector Undertakings (DPSUs)/Ordnance Factory Board (OFB)/Services with an industry interface to provide development support to MSMEs/Startups/Industry for import substitution.

Key Points of DAP 2020

The DAP contains policies and procedures for procurement and acquisition from the capital budget of the MoD in order to modernise the Armed Forces including the Coast Guard.

Evolution of DAP

  • The first Defence Procurement Procedure (DPP) was promulgated in 2002.
  • A committee under the chairmanship of the Director General (Acquisition) was constituted to review the Defence Procurement Procedure (DPP) 2016.
  • DPP 2016 was released replacing the DPP 2013 based on the recommendations of the Dhirendra Singh committee.
  • It focussed on indigenously designed, developed and manufactured weapon systems.
  • It was facing several issues like lack of transparency (leading to Rafale Scam), inconvenient offset regulations etc.

Objective

  • Turning India into a global manufacturing hub.
  • Aligned with the vision of the Government of Atmanirbhar Bharat and empowering Indian domestic industry through the Make in India initiative.

Salient Features

For Ease of Doing Business:

  • Time-Bound Defence Procurement Process and Faster Decision Making: By setting up a Project Management Unit to support contract management and to streamline the Acquisition process.
  • Revised Offset Guidelines: Preference will be given to the manufacturing of complete defence products over components and various multipliers have been added to give incentivisation in the discharge of offsets.
  • Further, there will be no offset clause in government-to-government, single vendor and Intergovernmental Agreements (IGA).
  • Offsets 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.
  • Multipliers are credit values earned on offset transactions. A multiplier of 3 means a foreign company can claim credits up to three times its actual offset investment.
  • The offset policy for defence deals was adopted in 2005 for all defence capital imports above Rs. 300 crore under which the foreign vendor is required to invest at least 30% of the value of the contract in India.
  • The offset clause was hindering the transfer of technology, according to a recent CAG report.
  • Rationalization of Procedures for Trials and Testing: The scope of trials will be restricted to the physical evaluation of core operational parameters.

To Develop India into Global Manufacturing Hub:

  • FDI in Defence Manufacturing: Provisions have been incorporated like a new category ‘Buy (Global – Manufacturer in India)’, to encourage foreign companies to set up manufacturing through its subsidiary in India.
  • To promote Make in India and Atmanirbhar Bharat initiatives:
  • Reservation in Categories for Indian Vendors: Some categories like Buy (Indian Indigenously Designed Developed and Manufactured -IDDM), Production Agency in Design & Development etc. will be exclusively reserved for Indian Vendors and FDI of more than 49% is not allowed.
  • Ban on Import of Certain Items: With a view to promote domestic and indigenous industry, the MoD will notify a list of weapons/platforms banned for import.
  • Indigenisation of Imported Spares: Steps to promote manufacturing of parts in India have been taken. This includes establishment of co-production facilities through Intergovernmental Agreements (IGA) achieving ‘Import Substitution’ and reducing Life Cycle Cost.
  • Overall Enhancement in Indigenous Content (IC): This has been done in all the categories, for products like softwares etc, as follows:

Other Features

  • Cost Cutting: Leasing has been introduced as a new category for acquisition in addition to the existing ‘Buy’ and ‘Make’ categories so that periodical rental payments are made instead of huge capital investment.
  • This will be useful for military equipment not used in actual warfare like transport fleets, trainers, simulators, among others.

Other Related Initiatives:

  • Recently, the Ministry of Defence has formulated a Draft Defence Production and Export Promotion Policy 2020 (DPEPP 2020).
  • Innovations for Defence Excellence (iDEX) has been operationalised to provide necessary incubation and infrastructure support to the startups in the defence area.
  • iDEX would be further scaled up to engage with 300 more startups and develop 60 new technologies/products during the next five years.
  • Mission Raksha Gyan Shakti was launched to promote a greater culture of innovation and technology development and file a higher number of patents in Defence Public Sector Undertakings (DPSUs), Ordnance Factory Board (OFB).
  • It would be scaled up for promoting the creation of Intellectual Property in the sector and its commercial utilisation.

Way Forward

  • Self-reliance in defence manufacturing is a crucial component of effective defence capability and to maintain national sovereignty and achieve military superiority. The DAP 2020 not only protects the interests of domestic manufacturers by indigenization of technology, but also provides impetus to foreign investment in the country.
  • Given the key geostrategic challenges, emanating from the threat of two-front war (against China and Pakistan combinedly), India needs to carry out much-needed defence reforms. DAP 2020 is the one of the many needed defence reforms.

Source: TH


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