Defence Acquisition Procedure – An Overview

Introduction

On 1st October 2020 the Ministry of Defence (MoD) released a notification launching the Defence Acquisition Procedure (DAP) 2020 which replaced and superseded the earlier version of the Defence Acquisition Procedure 2016. The DAP 2020 pertains to governing the procurement and acquisition of capital defence equipment and seeks to procure timely and prompt acquisition of military systems, equipment and procurements as and when required by the Indian Armed Forces.

The process of Defence Acquisition Procedure extends to all acquisitions for the Ministry of Defence in reference to the armed forces which are capital in nature, except land and other specified works such as medical equipment and apparatus under the Service Headquarters of the armed forces. Additionally, the DAP also focuses on the Foreign Direct Investments (FDI) procedure in the manufacturing of defence equipment along with indigenisation of the prices for these equipment.

Overview of the Defence Acquisition Procedure

The Defence Acquisition Procedure was amended in the year 2020 to take over the provisions of the 2016 procedure and has led to the introduction of nine projects under the Defence Ministry i.e., four programs under the ‘Make – I’ category and five programs under the ‘Make – II’ category. The ‘Make’ category under the DAP refers to category of acquisition of capital and capital equipment which are the cornerstone of the Make in India initiative and look forward to the involvement of both the public and private sectors.

The Make-I projects refer to government-funded projects and schemes while the Make-II projects refer to industry-funded programs. The Make-III category of DAP pertains to military equipment and hardware which may not have been designed or developed in the country but can be manufactured in the country for import substitution or manufacture by domestic firms in partnerships or collaborations with foreign firms.

Embargo Provisions: The DAP 2020 has also led to an embargo on the import of weapons or platforms to expand and develop the domestic and indigenous industry of India along with aligning the DAP with governmental initiatives such as “Make in India”. A list of 101 weapons and platforms have also been specified by the Ministry of Defence as banned or classified for imports so that they can only be procured through the domestic channel leading to the promotion of the Indian domestic industry along with significant investments in research and development. Additionally, with a change in the FDI policy of the country along with changes to the definition of ‘Indian Vendors’, those companies which are owned and controlled by the Original Equipment Manufacturers (OEMs) situated in foreign countries shall also be eligible to become a part of the procurement cum manufacture of that category of weapons which are prohibited for imports that may be done either individually or through collaborations or partnerships.

Leasing: Leasing as a category for the acquisition of weapons in the country has also been introduced which has aimed to provide a means of asset acquisition without the need to purchase or significantly invest in the purchase or manufacturing-related research and development. This has provided various benefits to the Indian defence mechanism such as significant reduction in the defence budgetary allocation and protection and prevention from redundancy. Moreover, since the defence landscape has been rapidly changing due to improvements in technology, this provision would enable the Indian defence mechanism to easily upgrade their equipment as and when necessary. The leasing provisions have been divided into two categories – Lease (Indian) wherein the lessor is an Indian entity and is also the owner of the asset and in Lease (Global), the owner is an entity located overseas.

Revamped Offset Policy: In order to promote the indigenisation of defence equipment, the specified vendors who achieve a minimum of 30% IC in the ‘global’ category are discharged from discharging their offset obligations in the country along with being exempted from defence procurement through various channels such as foreign military sales, intergovernmental agreements and ab – initio single vendor cases under the offset obligations. The revamped policy has also dispensed with the concept of offset banking as compared to the previous policy. However, the already – existent offsets under the previous procedures can still be utilised without any express bars.

There are various other provisions that have been included along with the above provisions such as changes that have been introduced in standard contract documents, post-contract management, global manufacturing in India etc.

Conclusion

Post introduction of the DAP 2020, there have been numerous advancements in the procurements of defence equipments that have led to ensuring ease of doing business in the country along with streamlining of the entire system which was earlier systematically stuck by bureaucracy and red-tapism.

In order to boost the domestic manufacturing industry in the country, the key focus of the program has been to promote the ease of doing business in the country along with an adequate emphasis on managing the import requirements and export capacities of the country. One of the biggest steps in improving the self-reliance in the domestic industry of India is the ban imposed on 101 defence equipment imports which has been expected to benefit the country with around INR 4 lakh crores in the upcoming 6-7 years.

However, just like the predecessors of DAP 2020, the success of this program would depend upon the possibility of a successfully developed financial backing of all the programs of acquisition and the ability of the Indian domestic manufacturers to compete with the international institutional manufacturers.

King Stubb & Kasiva,
Advocates & Attorneys

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