Thursday, 8 May 2008

DPP 2008: New rulebook for the billion dollar arms game

(Part 1 of a two-part series on India’s new defence procurement policy)

by Ajai Shukla
Business Standard: 8th May 08

The long wait for the global arms industry is drawing to a close. Top sources in the Ministry of Defence (MoD) have confirmed to Business Standard that a revamped policy for defence procurement and production is almost finalised. By 15th May, and in any case before the 25th, the Defence Procurement Policy, 2008 (DPP-2008) will be promulgated by Defence Minister AK Antony. 

Before that is done, a high-level meeting at the MoD, on Wednesday, would have obtained the defence minister’s decisions on a few key issues that are still unresolved. Thereafter, the Defence Acquisition Council (DAC), the MoD’s highest decision-making body, will approve the draft DPP-2008. After that, Mr Antony will formally announce DPP-2008. The new policy will simultaneously be published on the MoD website.

The new policy is long delayed, but there is now a clear deadline. In the last week of May, a high-level MoD delegation will fly to Germany for the Berlin Air Show (named ILA 2008), which is scheduled from 27th May to 1st June. The Berlin Air Show will be the international stage on which these top policymakers will field questions on DPP-2008. MoD sources say India’s new procurement policy must be promulgated at least a week before this event.

The two-hour seminar in Berlin, on the afternoon of 28th May 2008, on “Opportunities in the defence sector in India”, has already been sold out. Amongst those who will present the new policy in Berlin are Minister of State for Defence Production, Rao Inderjit Singh; Secretary (Defence Production), Pradeep Kumar; Director General Acquisitions, Shashi Kant Sharma and the Chairperson of India’s top offsets body, DOFA, Satyajeet Rajan.

The Chairman of Hindustan Aeronautics Ltd (HAL), Ashok Baweja, will also speak on the production capabilities of India’s aerospace industry. HAL is expected to be a key player in a large number of offsets contracts that will arise from the Indian contract to buy 126 medium fighter aircraft.

Confirming to Business Standard that the MoD was aiming to release DPP-2008 on 15th May, Minister of State for Defence Production, Rao Inderjit Singh ascribed the delay to the need to come out with a comprehensive document that clarified all the issues around offsets policy, foreign direct investment in the defence sector, and the promotion of indigenous defence production.

Rao Inderjit Singh said, “The idea is to come out with a comprehensive DPP-2008. It has been built into the policy (DPP-2006) that every two years we will make what changes are necessary. So we’ll have one in 2008; hopefully we’ll have the next one in 2010. It’s a continuous process of improvement.”

The delay in DPP-2008 is also partly due to a more vibrant decision-making process within the MoD, where divergent opinions have competed on important issues, such as whether offsets should be enhanced from 30% to 50%, whether FDI limits in defence production should be raised from 26% to 49%, and on the implementation of the new offsets policy. It is the final decisions on these questions that have delayed the announcement of DPP-2008.

(Next: Important new features in DPP-2008)


left wing nut job said...

Are there any interest groups that are vehemently opposed to opening up more of the defense sector to the private and foreign players?

Broadsword said...

Just like in any commercial scenario, there are lots of interest groups at work here, each of them competing with the other for defence business in India.

There are the multinationals, who want EVERYTHING opened up. There are Indian companies who want enough opening up so that they can benefit from multinational partnership without having to deal with multinational competition.

There are government companies and research establishments who would prefer nothing to be opened up, except on occasions when they pick and choose.

There are the Left wing trade unionists who don't want anything opened up because it will lead to competition.

There are the mad right wing people (many of whom you will see on websites like Bharat Rakshak) who don't want anything opened up because they believe the DRDO can make everything that India needs.

You want to hear some more?

left wing nut job said...

Please, do tell more.

This, I feel, can be a true turning point for the Indian mil-ind sector. It can either continue to grind away like it has been for years with making hardly a dent in technology acquisition and implementation or it can be on a path of steady growth.

There are strong reasons to open up because logically, isn't it better to buy equipment from a foreign firm that has a solid foundation in India than to buy it from a foreign firm that hardly has an Indian presence? The more exposed the foreign firms are to the Indian economy and Indian trends, the more they have to lose if they upset the Indian applecart.

Broadsword said...

The main complaint of companies wanting FDI raised from 26% to 49% is:

"The government of India is not willing to buy defence equipment from a company in which a foreign vendor own 49% of the equity; but GoI is willing to buy the same equipment from a abroad, where the foreign vendor owns 100% of the equity."


Ankur said...

I agree with left wing nut job, but would like to push the point further: why not outright buy (crucial) technological know-how for the price that *everything* eventually has?

This still leaves a lot of room for foreign companies to come in and do business in India, whilst keeping happy the DRDO chaps in the longer run.

Then we can be more fruitful in our research without re-inventing the wheel.