Indigenization and Self-Reliance in Defence Procurement: A Legal Analysis of the Defence Acquisition Procedure 2020

Posted On - 28 October, 2024 • By - Pooja Chatterjee

Introduction

India’s national security environment, shaped by its strategic geography and complex geopolitical relations, necessitates a vigorous defence mechanism. For years, India has been one of the largest importers of defence equipment, making it vulnerable to supply chain disruptions and external dependencies. This reliance on foreign suppliers has led to an increasing focus on indigenization and self-reliance in defence production. The Defence Acquisition Procedure (DAP) 2020[1] is a crucial policy document that addresses these concerns, aiming to promote indigenization and self-reliance in defence procurement.

Background: The Shift Towards Self-Reliance

India’s quest for self-reliance in defence procurement can be traced back to its early post-independence years, when it began developing its domestic defence manufacturing capabilities. However, despite several efforts, the country remained dependent on imports for majority of its defence needs. According to a 2020 report by the Stockholm International Peace Research Institute (SIPRI)[2], India was the world’s second-largest importer of defence equipment, accounting for 9.5% of global arms imports between 2015 and 2019.

This heavy dependence on foreign suppliers poses significant challenges to India’s strategic autonomy. Realizing the need for indigenization, the Indian government has gradually introduced reforms aimed at enhancing domestic defence manufacturing capabilities. In recent years, Prime Minister Narendra Modi’s vision of Atmanirbhar Bharat (Self-Reliant India) has become a central policy goal, further propelling the agenda of indigenization .

The Defence Acquisition Procedure 2020

The Defence Acquisition Procedure, 2020 supersedes the Defence Procurement Procedure (DPP), 2016 and represents a paradigm shift in India’s defence procurement policy. It is designed to promote the indigenous defence industry, streamline acquisition processes, and boost transparency in procurement decisions.

Key features of the DAP 2020 include:

  1. Buy (Indian-IDDM) Category: DAP 2020 introduces the Buy (Indian-IDDM) (Indigenously Designed, Developed, and Manufactured)[3] category as the top priority for defence procurement. This category requires defence products to have a minimum of 50% indigenous content and ensures that preference is given to equipment that is designed and developed in India. By promoting local research, design, and manufacturing, this provision serves as a critical step towards achieving self-reliance.
  2. Increased Indigenous Content Requirements: The DAP 2020 mandates higher levels of indigenous content across various procurement categories. For instance, the Buy (Indian) category requires a minimum of 50% indigenous content, up from 40% in the previous policy. Similarly, the Buy and Make (Indian) category mandates at least 50% indigenous content in the manufacturing phase.
  3. Make in India Initiative: The Make procedure[4] in DAP 2020 aligns with the Make in India initiative and focuses on promoting indigenous defence manufacturing. The policy introduces two subcategories under Make: Make-I (government-funded projects) and Make-II (industry-funded projects). The government provides up to 70% funding for prototype development in Make-I projects, encouraging the domestic defence industry to innovate and collaborate with the government on cutting-edge defence technologies.
  4. Strategic Partnership Model: The Strategic Partnership (SP) Model introduced in DAP 2020 promotes collaboration between Indian private companies and foreign Original Equipment Manufacturers (OEMs). This model facilitates technology transfer, allowing domestic companies to gain expertise in manufacturing high-end defence equipment. Key defence platforms, including fighter aircraft, submarines, and helicopters, are expected to be developed under this model.
  5. Leasing Model for Defence Equipment: One of the notable introductions in DAP 2020 is the leasing model, which enables the armed forces to lease equipment instead of outright purchase. This model is particularly useful for acquiring expensive equipment like transport aircraft, helicopters, and drones. Leasing reduces the financial burden on the government while ensuring that the armed forces have access to the latest technology.
  6. Focus on MSMEs: The DAP 2020 emphasizes the role of Micro, Small, and Medium Enterprises (MSMEs) in defence production[5]. By encouraging MSMEs to participate in defence procurement, the policy aims to create a robust domestic supply chain and provide opportunities for smaller companies to contribute to defence manufacturing.
  7. Foreign Direct Investment (FDI) in Defence: To attract foreign investment in the defence sector, the government has increased the Foreign Direct Investment (FDI) limit to 74% under the automatic route[6]. This policy change is intended to facilitate technology transfer and joint ventures between Indian companies and foreign defence manufacturers, thereby enhancing domestic production capabilities.

The Defence Acquisition Procedure, 2020 operates within a broader legal and regulatory framework is designed to ensure transparency, accountability, and efficiency in defence procurement. The primary legislative and regulatory framework includes:

  • Defence Production & Export Promotion Policy (DPEPP) 2020: the DPEPP[7] outlines the government’s vision for creating an indigenous defence manufacturing base. It emphasizes self-reliance in defence technology and sets the goal of increasing the share of domestic procurement in India’s defence acquisitions.
  • Defence Procurement Manual (DPM): The DPM[8] provides guidelines for defence procurement below a certain financial threshold, complementing the DAP 2020 by ensuring that smaller acquisitions also align with the government’s indigenization goals.
  • Public Procurement (Preference to Make in India) Order, 2017: This order[9], issued by the Department for Promotion of Industry and Internal Trade (DPIIT), mandates that preference be given to domestically produced goods and services in public procurement. It applies to defence procurement as well and is in line with the objectives of DAP 2020.
  • Innovation for Defence Excellence (iDEX): The iDEX[10] initiative, launched in 2018, fosters innovation and technology development in the defence sector. It provides funding and support to startups and MSMEs that develop innovative solutions for defence needs. DAP 2020 leverages the iDEX platform to encourage home-grown solutions to defence challenges.
  • Defence Industrial Corridors: The government has established two Defence Industrial Corridors[11]—one in Tamil Nadu and another in Uttar Pradesh—to promote defense manufacturing. These corridors aim to attract investments, foster innovation, and build an ecosystem conducive to defence production.

Data and Current Progress

Since the implementation of the Defence Acquisition Procedure (DAP) 2020, India has made substantial progress toward indigenization and self-reliance in defence procurement. According to the Ministry of Defence, as of 2023-24, around 75% of India’s capital procurement budget has been allocated to domestic sources, a significant increase from 68% in 2022-23[12]. This boost aligns with India’s broader “Atmanirbhar Bharat” (self-reliant India) initiative and highlights the growing role of local defence manufacturers in meeting the country’s needs.

Growth in Defence Exports

India’s defence exports have witnessed a remarkable surge, with the 2022-23 fiscal year recording ₹16,000 crore (USD 1.93 billion), more than doubling from ₹8,434 crore in 2021-22. This growth is largely attributed to government policies aimed at promoting indigenization and facilitating exports, as well as the development of indigenous platforms like the Light Combat Aircraft (LCA) Tejas, advanced UAVs, helicopters, and naval ships.

Major Indigenous Defence Projects

Recent procurement contracts underscore India’s focus on building indigenous capabilities. For example, the Ministry of Defence signed contract for 83 Tejas Mk-1A jets from Hindustan Aeronautics Limited (HAL), with deliveries in 2024. Additionally, the Indian Army has inducted 118 Arjun Mark-1A main battle tanks, valued at ₹8,400 crore. These projects highlight India’s growing capability to develop and procure advanced systems domestically[13].

Foreign Partnerships and Technology Transfers

Despite its indigenization efforts, India continues to pursue strategic foreign partnerships to acquire cutting-edge technology. In 2023, India signed a $3 billion deal with the U.S. for MQ-9B SeaGuardian drones, with provisions for technology transfer to enhance local manufacturing capabilities. France also remains a key supplier, with India receiving its final batch of Rafale jets, further boosting its aerial capabilities.

Investment in Defence Innovation

To further drive innovation, initiatives like the Innovations for Defence Excellence (iDEX) and the Technology Development Fund (TDF) have played a critical role. As of 2024, iDEX has supported over 200 startups in contributing to critical military technologies such as AI, drones, and cybersecurity. This has not only boosted the country’s technological base but also helped small and medium enterprises (SMEs) integrate into the defence ecosystem. In summary, India’s defence procurement strategy under DAP 2020 has fostered substantial growth in domestic production, exports, and R&D, while balancing global partnerships to acquire key technologies. These developments are positioning India to emerge as a major global player in defence manufacturing and exports.

Conclusion

The Defence Acquisition Procedure, 2020 is a policy that underscores India’s commitment to achieving self-reliance in defence procurement. By prioritizing indigenous design, development, and manufacturing, DAP 2020 seeks to build a strong domestic defence industrial base, reduce dependency on imports, and enhance India’s strategic autonomy.  While challenges remain, the progress made under DAP 2020 is encouraging, and with continued government support and industry collaboration, India is well-positioned to become a global hub for defence manufacturing. As the country navigates an increasingly complex security environment, self-reliance in defence procurement will be a crucial determinant of its strategic future.

Contributed by – Aribba Siddique

[1]  https://www.mod.gov.in/dod/sites/default/files/DAP2030new_0.pdf

[2] https://www.sipri.org/databases/armstransfers

[3] https://www.mod.gov.in/sites/default/files/DraftChIAcqnCatPlgIC.pdf

[4] https://www.mod.gov.in/dod/sites/default/files/DAP2030new_0.pdf

[5] https://pib.gov.in/PressReleasePage.aspx?PRID=1846935

[6]https://pib.gov.in/PressReleasePage.aspx?PRID=2004475#:~:text=Foreign%20Direct%20Investment%20(FDI)%20limit,in%20access%20to%20modern%20technology.

[7] https://www.ddpmod.gov.in/dpepp

[8] https://mod.gov.in/dod/defence-procurement–manual

[9] https://www.meity.gov.in/writereaddata/files/PublicProcurement_MakeinIndia_15June2017.pdf

[10] https://idex.gov.in/

[11] https://www.makeinindia.com/defence-industrial-corridors-india

[12] https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1989502

[13] https://pib.gov.in/Pressreleaseshare.aspx?PRID=1694844

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