DefMin to ease procurement procedure, galvanise industry with “Make” projects

MoD secretary says defence PSUs have “low level of efficiency”

By Ajai Shukla

Business Standard, 6th Jan 2015

For the first time ever, a top ministry of defence (MoD) official has justified the need to favour defence public sector undertakings (DPSUs) because of their inherent inefficiency.

Addressing an Assocham gathering of defence industry in New Delhi on Monday, Secretary of Defence Production, G Mohan Kumar, explained why DPSUs were handed contracts on “nomination”, i.e. without competitive bidding: “One of the reasons why nominations take place is low level of efficiency of the DPSUs. Because of the characteristics of the DPSUs, they also suffer various problems and they may not be able to come to a level of open competition with the result that often they depend on nominations (sic).”

The private sector has long complained about the disadvantages they face vis-à-vis DPSUs, particularly in discriminatory taxes and duties, delayed payment schedules and the absence of any protection against exchange rate variations.

Kumar promised: “As far as fiscal or taxation measures are concerned we are trying our best to see that a level playing field is being provided to the private sector and I think that shortly you'll start seeing the results.”

The defence production secretary also promised a “massive thrust” to the “Make” category of acquisitions, in which the MoD reimburses Indian companies for developing specified defence platforms, such as tanks, artillery guns or communications networks.

Kumar said: “The ‘Make’ policy is under change, it is being streamlined, and it is on our agenda that at least 8-10 ‘Make’ projects will be started every year. Once this happens, I'm sure defence production and development will attain a critical volume which would be able to carry the industry forward.”

This is not the first time the MoD has announced that “Make” projects would be the locomotives that galvanise defence industry. At the Defexpo 2012, in March that year, the MoD’s acquisitions chief, Vivek Rae, promised: “There will be a list of 150-180 “Make” projects that we will put on the web.”

Accepted that procurement processes currently took “a pretty long time”, Kumar promised to simplify the Defence Procurement Procedure (DPP) to make acquisition quicker and more predictable.

“We have a very bulky procedural volume i.e. the DPP and this is my dream to see that this procedure is reduced to 25-30 pages instead of hundreds of pages”, said Kumar.

The MoD, he said, is seriously considering setting up a “promotional body” that would assist defence industry in obtaining investments, and in finding markets.

Admitting that little headway had been made in facilitating the private sector since it was first allowed into defence production in 2001, Kumar pointed to several recent “successes” --- liberalizing of defence industrial licences; easing of the foreign direct investment (FDI) cap from 26 to 49 per cent; export liberalization and a raft of procedural changes.

“These are superficial changes that do very little to make it easier to do business”, pointed out a private defence industry CEO.