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DPP

21st April – Draft DPP 2020

Draft DPP 2020

The Ministry of Defence has uploaded the latest draft of Defence Procurement Procedure (DPP 2020) on its website and comments are sought by May 8, 2020. By the year-end, after taking cognisance of all the suggestions, DPP 2020 is expected to be finalised and issued.

What is DPP?

The DPP defines the process for capital expenditure from the annual defence allocation. For the current financial year, it is pegged at Rs. 1,18,555 Crores and is approximately one-third of capital expenditure of the Government of India. Therefore, the process of refining the DPP is significant.

Background –

  • After the Bofors incident that rocked the nation, the DPP took a formal format in 1992. In the aftermath of Kargil Conflict, on the recommendations of the Group of Ministers, DPP took shape as a comprehensive document on capital procurements in 2002.
  • With practical experience gained and observed inability to speed up the procurement process, it was continuously revised.
  • Its new incarnations in 2003, 2005, 2006, 2008, 2011, 2013 and 2016 did not deviate from the fundamental structure and process of procurement, resulting in no significant enhancement in the efficiency of capital procurements.

Objective –

The main aim of DPP 2020 should be to efficiently and effectively utilise capital budget allocation for modernisation of the Indian Armed Forces and simultaneously give a boost to the indigenisation of defence industry as a long-term strategic objective.

Addressing the issues –

  • First issue is with the inherent underlying principle that to ensure financial probity, multiple checks are mandatory. A simple observation in the procurement process may have to be commented upon by 15 individuals before a case can move forward. The approach of collective responsibility has invariably allowed diminished individual accountability, which was adversely commented upon by the Comptroller and Auditor General (CAG) of India
  • The second issue is about the structure of DPP. DPP stands for Defence Procurement Procedure and this aspect needs to be the focal point. Besides covering the procurement procedure, the draft has so many other aspects related to partnerships, research and development (R&D), innovations, manufacture, offsets et al. Structurally, DPP needs segregation of R&D from the procurement procedure.
  • The third issue is about the complexity of the process. It starts with the first stage of procurement that leads to acceptance of necessity and categorisation of the capital acquisition scheme. with every new incarnation, DPP has added new ways for categorisation. Simply stated, the decision-maker needs to categorise the operationally required capability into two verticals – Buy or Lease. In either case, every required capability needs to be acquired or leased on a globally competitive basis to obtain the best value for money. At this juncture, it may seem contrary to ‘Make in India’ goal.
  • The fourth change needed is about the offset policy. The intention of this clause was to plough back capital expenditure on imported military hardware to initiate the indigenous defence industry. But it has not happened.
  • The last point is about clarity in DPP. It needs to be drafted for the decision-makers. Without any formal training and with relatively very short average tenure of two to three years in India, it is difficult for most personnel to comprehend a complex document like the draft DPP 2020.

Way forward –

  • A separate policy and guidance document, to cover all aspects of R&D for the defence sector from innovation to design and development as articulated in draft DPP 2020, will be ideal.
  • It is well known that the offset clause adds to the final contract value. Eliminating offsets will simplify the contracting process and possibly enhance financial efficiency. To promote ‘Make in India’, a simple method can be adopted to counterbalance the removal of offset clause and energise indigenous manufacture. As all capital acquisition schemes are proposed via a global tender, a clause of part payment in Non-Repatriable Rupees (NRR) can be added to assist in offsetting the notional loss by current suboptimal offset procedure.
  • The DPP 2020 needs to cut out obfuscation, repetitions, and bring out core issues for the consideration of the decision-makers in a concise and clear manner. This can be done in case issues associated with R&D are cut off, categorisation is simplified, and clauses like offset eliminated.

SourceMPIDSA

QUESTIONWhat is a defence procurement procedure? Discuss the challenges to the ‘Draft DPP 2020’ policy.

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