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 for up to 70% of prototype development costs or maximum of Rs. 250 crores per Development Agency (DA).
  2. Make-II (Industry Funded): This includes design & development and innovative solutions by 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 missile, Hypersonic missile, Anti-Ship missile, Extended Range Anti-Submarine Rocket, Mounted Gun System, Ammunitions, 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 top most 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 aircrafts, 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 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 manufacture of complete defence products over components and various multipliers have been added to give incentivisation in 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 upto three times of 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.
• Offset clause was hindering the transfer of technology, according to a recent CAG report.
• Rationalization of Procedures for Trials and Testing: Scope of trials will be restricted to 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 – Manufacture 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.

‘Defence Production & Export Promotion Policy (DPEPP)’ 2020

• This draft policy is positioned as the Ministry of Defence’s overarching guiding document to provide a focused, structured and significant thrust to the defence production capabilities of the country for self-reliance and exports. 
• It envisions to make India amongst the top countries of the world in the Defence sector, including the Aerospace and Naval Shipbuilding sectors, from design to production, with the active participation of public and private sectors. 
• This policy, inter alia, aims to create an environment that encourages R&D, rewards innovation, creates Indian Intellectual Property (IP) ownership and promotes a robust and self-reliant defence industry.
• It aims to further ‘Self Reliance’ of the country in the defence sector by promoting indigenization and bring ‘Ease of Doing Business’ with emphasis on Simplification, Delegation, Reduced Timelines and make the process as Industry friendly.

Goals and Objectives:

• To achieve a turnover of Rs. 1,75,000 crore including export of Rs. 35,000 crore in Aerospace and Defence goods and services by 2025.
• To develop a dynamic, robust and competitive Defence industry, including Aerospace and Naval Shipbuilding industry to cater to the needs of Armed forces with quality products.
• To reduce dependence on imports and take forward "Make in India" initiatives through domestic design and development.
• To promote the export of defence products and become part of the global defence value chains.
• To create an environment that encourages research and development (R&D), rewards innovation, create Indian Intellectual Property (IP) ownership and promotes a robust and self-reliant defence industry.

Outlined Strategies:

Procurement Reforms:

• A Project Management Unit (PMU) will be set up for the development and production of technologies involved, life cycle costs and maintenance requirements of platforms, equipment and weapon systems.
• It also aims to move away from licensed production to design, develop and produce indigenously.
• It also aims to own the design rights and IP of the systems projected in the Long Term Integrated Perspective Plan (LTIPP) and a Technology Assessment Cell (TAC) would be created.
• The TAC would also assess the industrial capability for design, development and production, including re-engineering for production of major systems such as armoured vehicles, submarines, fighter aircraft, helicopters and radars with the major industries in the country.

Indigenisation And Support to MSMEs/Startups:

• The indigenisation policy aims to create an industry ecosystem to indigenise the imported components (including alloys and special materials) and sub-assemblies for defence equipment and platforms manufactured in India. 5,000 such items are proposed to be indigenised by 2025.
• More than 50 startups are currently developing new ‘fit-for-military-use’ technologies/products.

Optimise Resource Allocation:

• The share of domestic procurement in overall Defence procurement is about 60%.
• To enhance procurement from the domestic industry, the procurement needs to be doubled from the current Rs. 70,000 crore to Rs. 1,40,000 crore by 2025.

Investment Promotion and Ease of Doing Business:

• India is already a large aerospace market with rising passenger traffic and increasing military expenditure, as a result of which the demand for aircraft (fixed and rotary wings) is rising.
• The opportunities in the aerospace industry have been identified in the following segments - aircraft build work, aircraft Maintenance, Repair and Overhaul (MRO), helicopters, engine manufacturing and MRO work, line replaceable units, Unmanned Aerial Vehicles (UAVs) and upgrades and retrofits.
• The improvement in market size, demographic dividend and availability of diverse skill sets are evident from India's ranking in the World Bank’s ‘Ease of Doing Business’ (EoDB) report.
• The investments in the defence sector need to regularly sustain the steady supply of orders.

Innovation and R&D:

• 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.

Other Related Initiatives:

• Recently, the Ministry of Defence has formulated a new Defense Acquisition Procedure (DAP), 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 attainment of this will ensure strategic independence, cost-effective defence equipment and may lead to saving on defence import bill, which can subsequently finance the physical and social infrastructure.