Stock Market

Govt to unveil new defence policy on Mar 28, effective Apr 1

The Defence Acquisition Council, the apex body in the Ministry of Defence, today said it had approved the Defence Procurement Policy (DPP) 2016, which will come into effect from April 1, 2016.

The DPP, which will have provisions to fast-track acquisition of critically-needed equipments, will be unveiled at the Defence Expo on March 28.

The policy will give first priority to Indian Designed Developed and Manufactured (IDDM) acquisition and relax norms with respect to blacklisting.

There will be strategic partnerships in case of helicopters, fighters and submarine prokects. As well, the government will updated the Ordnance Factory Board and Defence Procurement Manuals in 2 months.

In an interview with CNBC-TV18, PwC India Partner Dhiraj Mathur,¬†defence expert Anil Chait and M&M’s SP Shukla discussed the policy and outlined their views on the same.

Below is the transcript of the intervew on CNBC-TV18.

Kritika: Is this enough to be able to fast track investment because that is the one area that has been lagging behind other sectors?

Mathur: Yes, absolutely because the key issue with the defence sector is it is a monopoly market. This is a single buy of the government that goes by everyone. So, having a provision for strategic partnerships will allow private Indian companies.

Kritika: But strategic partnership norms will be included later this year. So, the other areas that have been announced is the fast track that Rituparna pointed out the Indigenously Designed, Developed and Manufactured (IDDM) which will be given first priority in defence acquisition. How significant would the norms that have been announced today in the policy be for increasing investments?

Mathur: IDDM is going to be a game changer because it is going to encourage Indian companies to make investments in R&D and the design and development manufacture high value defence equipment and it in a sense is like the strategic partnership concept because the companies will once you design and develop a product and they prove that if you have that assurance that they are going to get orders. Therefore IDDM is going to be a game changer because Indian companies will be encouraged and in fact forced to get into design and development.

The only thing to see is that in the details of the policy whether they are going to also allow some of the R&D to be done by the IITs, The Indian Institute of Science because not all Indian companies, some of them do, but not all of them have the R&D infrastructure that is necessary to design and develop products.

Q: The DPP will layout provisions to fast track acquisition of critically needed equipments and products by cutting short the procedure. So, this is what we know, we don’t know what the provisions are but how significant would that be in cutting down the time that is required which interferes with the overall delivery process?

Chait: The process has been under discussion and if it is followed as has been talked then the compression of time would be of great advantage because it will ensure that the users requirement are met within the stipulated time and there are no slippages. Hence capability shortfalls as envisaged in the capability building roadmap is not sacrificed.

So, I think it is extremely important for two reasons, capability deficit or capability gap does not exists and that we get the capability which is in the form of product at the best price.

Q: What do you think the defence ministry needs to focus on with respect to the Ordinance Factory Board (OFB) procurement manuals and defence procurement manuals to be able to simplify the process?

Chait: As far as the simplification of the process is concerned you talked about the OFB and the DPP, I am very certain and very optimistic having been part of the process myself that the simplification as being discussed and envisaged would ensure that the problems that the vendors or the manufacturers were facing are removed to a very large extent, property is maintained along with the transparency and the processes get speeded up.

As far as the Ordinance Factory Board is concerned I am very certain it would give the capability to acquire the cutting edge technologies so that their products become that much more competitive to what is being offered by the other manufacturers.

Kritika: Your first reaction to this. You have been talking about the Defence Procurement Policy (DPP). There have been several loopholes that haven’t been covered in the defence sector because there hasn’t been clarity on the policy. From what you have heard so far, is this enough and what more does the Ministry of Defence need to focus on to be able to fast track investments in the sector?

Shukla: Yes, we wholeheartedly welcome the new policy. It has been in the making with the inputs from all stakeholders. The most welcome party of the policy is there is a special category of design and developed in India and that is golden news. What it means is not just assembly. If an Indian firm invests and spends money on design and development effort, develops a technology, develops its IPR, those projects will get preference over something which is purely imported and assembled. This is a welcome change, it is going to give a boost to investment in design and development by all Indian companies. We as far as in Mahindra are concerned we have always invested in this particular area believing that ultimately India will need to develop its own expertise. So, we welcome it wholeheartedly.

Q: Indian Designed Developed and Manufactured (IDDM) basically focuses on design and development. While big companies will be able to put in money in this regard, what about small companies and MSMEs, do you think they will have their wherewithal to put in their resources in design and development because defence procurement procedure for 2016 was also supposed to be about MSMEs. So, how do you think will the government take forward that particular agenda as well as promoting MSMEs in the defence sector is concerned?

Shukla: This has to be understood once and for all by everyone, when we come to engineering sector there is one level which is called platform maker and there is second level which is tier I and tier II. Everyone has a symbiotic relationship in the ecosystem. Whether it is plane or helicopter, whether it is tank or a truck or whether it is car or a tractor, the platform maker designs, develops and creates and assembly platform where he puts together.

Whereas large number of suppliers they actually supply parts and components for the same thing. The platform maker actually works closely with every part and component supplier and even sub assembly supplier. It is he who provides essential specs and designs so that they can supply to his specs and sit into the platform.

Only when platform makers take the lead the parts and components suppliers are able to feed into the system. Very simply put, when you make a car, the wheel comes from somebody, tyre comes from somebody else, the windscreen comes from somebody else, wiper from somebody else, everything comes from somebody else. So, design and development at platform level is one thing and then synergistically in a symbiotic relationship parts and components come together.

So, I believe there is no competition. Medium and small scale units will be integral part of the ecosystem. They will benefit when platform makers are making it in India, everybody in medium and small scale will benefit and we are here to promote them.