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Offsets Policy Still Evolving: Antony Print E-mail
Written by Anand   
Thursday, 20 January 2011
New Delhi: The Defence Minister Shri AK Antony has said the intent of the revised Defence Procurement Procedure is to expand our defence industrial base, encourage indigenous defence production and reduce defence imports.
Referring to the changes in the offsets provisions, Shri Antony said ‘our offsets policy is still in the process of evolution, based on our experiences in its implementation in various stages’.

"The changes aim at simplification of procedures, speeding up of procurement and enhanced benefits to the Indian defence industry. Keeping in view the strategic importance of the ship building sector, seminal policy changes have been incorporated in the ship building procedure. Our singular objective is to provide a level-playing field to the DPSUs, shipyards and private sector, as well as promote indigenization," Shri Antony said.

The Defence Procurement Procedure (DPP) is the defining document published by the Ministry of Defence (MoD) to enable decisions regarding defence capital acquisition for the Armed Forces to be made in a cost effective, timely and transparent manner.

The scope of the DPP has been enlarged gradually through amendments in 2003, 2005, 2006, 2008 and 2009.  The categorization of defence procurement proposals also been expanded over the last decade from “ Buy” to “Buy and Make”.  “Buy and Make Indian” and “Make” procedures.  The basic thrust of the enlargement has been to promote development of indigenenous defence industry.  The procedures have also been made more transparent and effective.

DPP-2011 incorporates further refinements based on the experience of the procurement agencies and feedback from the defence industry both India and foreign.  The highlights of the DPP-2011 that will encourage Indian Industry are:

(i) In an effort to ensure that Indian Industry is placed at par with the  Defence Public Sector Undertakings (DPSUS), the Exchange Rate Variation clause has now been made applicable to all Indian vendors when they compete with their foreign counterparts under the “Buy Global” category.

(ii) Bank Guarantees under the Integrity Pact have now been linked to the validity of the Commerical Offer submitted by vendors and are, therefore, no longer open ended.

(iii) The requirement of furnishing two separate financial bonds for performance of contract and warranty of equipment has now been amalgamated into a single Performance-cum-Warranty Bond.  This will ease the administrative and financial burden on Indian defence manufacturers.

(iv) The stringent clause for blacklisting vendors for delay in delivery of equipment, in fast track procurement cases has been removed.  However, the liquidated Damages have been marginally enhanced to ensure greater accountability by vendors.

Shipbuilding Procedure

The existing Chapter-III on “Ship Building” in DPP has been comprehensively revised to include guidelines for shipbuilding on competitive basis.  This revision has been based on inputs provided by all stakeholders, including the shipbuilding industry.  These changes will provide a level playing field to the DPSU Shipyards and Private Sector and promote indigenization for induction of the ships, submarines and yard craft for the Indian Navy and Coast Guard.

The revised procedure lays down the procedure for shipbuilding on competitive basis as well as on nomination basis.  Besides clearly articulating the step by step acquisition process, various clauses for strengthening of the contracting mechanisms, linking payments to stages of construction for ships/yard craft, including modular construction have been included.

The new guidelines will encourage healthy competition between the Private and Public Sector Shipyards and improve delivery indices.  The initiative will enable the Government, to harness national shipbuilding capacities, leading to development of a strong Defence Industrial base and self-reliance in warship building.

Offset Policy Guidelines

The scope of Offset Policy Guidelines is being expanded to include “civil aerospace”, “internal security” and “training” within the ambit of eligible products and services for discharge of offset obligations.  The list of eligible offsets will now cover most aspects of civil aerospace, including aircraft, both fixed wing and rotary, air frames, air engines, aircraft components, avionics, aircraft design and engineering services, aircraft material, technical publications, flying training institutions and technical training institutions.  A wide range of weapons and services for counter terrorism have been included in the list of products under “internal security”. These changes will provide a wider range of offset opportunities to vendors participating in defence procurements and encourage building up of indigenous manufacturing capability in crucial areas.

The Defence Minister will hold an annual review of the progress in self reliance that has been achieved during the year. 

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