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A Case for Deferring Promulgation of DPP 2020

Mr Amit Cowshish is a former Financial Advisor (Acquisition), Ministry of Defence and former Distinguished Fellow, Manohar Parrikar Institute for Defence Studies and Analyses, New Delhi. Click here for Detailed Profile
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  • April 17, 2020

    The 700-odd pages of the draft Defence Procurement Procedure (DPP) 2020 contain many new ideas but make for a tedious reading and may end up making capital acquisitions more complicated. This is not to belittle the efforts that have gone into putting the document together, but to point out that the draft requires a para-by-para review of the proposed policy and procedural changes, also taking into account the comments received by the Ministry of Defence (MoD) on the draft.1

    The need for this exercise is twofold. One, at the policy level, it must be ensured that the proposed changes serve a distinct purpose, which is not served by, or cannot be served by modifying, any pre-existing provision. Two, at the procedural level, the provisions must be crystal clear, leaving no room for subjective interpretations, and no untied ends. The draft DPP 2020 must pass muster on these yardsticks before it is promulgated.

    To illustrate, arguably the most significant change at the policy level concerns addition of several new procurement categories and alterations in the offset guidelines, both of which seem problematic. Talking about the procurement categories, their number has gone up from two in 2002 to 13 in 2020. Six of these, including a new category, are arranged in a hierarchical order with descending order of precedence.

    The hierarchy comprises the Buy (Indian – Indian Designed, Developed and Manufactured), Buy (Indian), Buy and Make (Indian), Buy and Make, Buy (Global – Manufacture in India), and Buy (Global) categories. Besides these, other categories include the new Lease category with two sub-categories, Make category with three sub-categories, Innovation category, and Design and Development category.

    In addition, there is the Strategic Partnership Model and the Technology Development Fund schemes. The proliferation of procurement categories could complicate the process of categorisation, not least because some of these categories have identical or similar overall objective.

    The Buy (Indian – IDDM), for example, refers to “… procurement of products from an Indian vendor that have been indigenously designed, developed and manufactured …”, while the Design & Development and Innovation categories refer to procurement of “… equipment/system/subsystem/assembly/sub-assembly, major components, or upgrades thereof, to be designed, developed and manufactured by an Indian vendor …”.2

    The commonality of the objective of these two categories, as evident from the italicised words in the preceding para, overlaps with the objective of the Make category which the draft DPP 2020 describes in these words: “…Projects under ‘Make’ or ‘Innovation’ category, except ‘Make III’, will essentially pertain to products involving indigenous design, development and manufacturing…’”3

    With some suitable changes, it should be possible to amalgamate these three categories into one broad-based category. Similarly, going simply by their objectives and defining attributes, it should be possible to combine Buy and Make, Buy (Global – Manufacture in India) and the Strategic Partnership Model. Lesser number of more clearly defined categories, distinct from one another in purpose and content, would make the process of categorisation simpler and procurement more expeditious.

    The changes made in the offset guidelines is another case in point. Apart from several somewhat inexplicable policy changes – deletion of the provision for offset banking and services as an avenue for discharging the offset obligation, just to mention two such changes, there are procedural changes which could be problematic. Take for example, offset credit on account of transfer of technology (ToT) which can now be claimed based on valuation by a recognised/certified valuation firm. This is a welcome step, but for the rider about valuation of technology.

    The draft DPP says that “(i)t would be appropriate if the (technology) is transferred by the vendor to the government and it then hires the valuer jointly with the vendor” and that “(a)nother option is for the valuer to be hired by the vendor in consultation with the Government”.4 This is a potential procedural bottleneck because there is no clarity about the consequences of hiring a valuer without consultation with the government, which is otherwise not mandatory. If, on the other hand, that is acceptable to the MoD, it is not clear as to what is the objective of specifying this option.

    While on the subject, it is a bit disappointing that the provisions for approval of the Indian Offset Partners (IOPs), change of IOPs, rephasing of the offset implementation schedule, etc., by the MoD have been retained. Similar controls are envisaged in relation to many other processes in the DPP. Ease of doing business requires such controls to be relaxed where the requirements to be complied with are clearly specified. Alternatively, if the MoD wants to retain the control, it would be helpful both to the acquisition personnel and the vendors if the grounds on which the permission would be granted or rejected are laid down in the DPP.

    There is clearly a lot of work that needs to be done before finalisation of the draft DPP 2020, starting with attenuation of this voluminous document, which should not be very difficult. One of the seven chapters on shipbuilding and repair/refit of vessels (on which there is a separate chapter in the Defence Procurement Manual [DPM] 2009) runs into almost 200 pages. Since this is a self-contained chapter, and it is of relevance only to the Indian Navy and the Coast Guard, it could be delinked from the DPP and the DPM and notified as a separate manual. 

    Some attention also needs to be paid to comprehensiveness, as well as the text of the various provisions in the draft DPP, particularly the template of various undertakings, request for proposal (RfP) and the contract, which have legal implications. The Fall Clause in the RfP5, for example, requires the vendors to submit an undertaking while submitting their bids that they have not supplied the same item to any government department at a lower price, and that if it is discovered after signing of the contract that the vendor had indeed supplied the same item at a lesser price, the contract price will be lowered to that level. 

    A strict interpretation of the clause would mean that no vendor can ever expect to supply the same item at a higher price even if the last time it was supplied at a lower price was several years earlier. Obviously, this is not possible and, to be fair, it does not seem to be the intention underlying the standard text of this clause. This calls for modification in the text of this clause, and other similarly problematic clauses and provisions in the DPP.

    It bears recalling that the DPP 2016 was amended as many as 47 times, which, among other things, points to that document having been promulgated without ironing out the rough edges. Considering the impending financial crunch due to the Covid-19 pandemic and uncertainty about allocations in the coming years, it is unlikely that the MoD will be able to launch many new procurement programmes under the new DPP any time soon.

    There is, therefore, a case for deferring promulgation of DPP 2020 to the next year by which time the present draft can be thoroughly revised. Other manuals like the DPM and those followed by the Defence Research and Development Organisation (DRDO) and the Ordnance Factory Board (OFB) can also be revised to ensure that all documents are in harmony and serve the common objective of equipping the armed forces with the latest equipment expeditiously and in a cost-effective manner.

    Views expressed are of the author and do not necessarily reflect the views of the Manohar Parrikar IDSA or of the Government of India.

    • 1. The Draft Defence Procurement Procedure (DPP) 2020 was posted on the MoD website on March 20, 2020, soliciting comments by May 08, 2020.
    • 2. Draft DPP 2020, Chapter 1, Paras 7 and 14.
    • 3. Ibid., Chapter III, Para 3.
    • 4. Ibid., Appendix D to Chapter II, Para 5.6.
    • 5. Ibid., Schedule I to Chapter I, Para 17.