Foreign arms sale gets easier under new defence purchase rule

The Defence Ministry on Monday has overhauled a set of rules to facilitate purchasing of military hardware, making it easy for foreign arms majors to sell their wares, while encouraging the Indian private sector to take nascent steps into defence manufacturing.

One of the biggest takeaways from Defence Procurement Policy (DPP), 2016, is more flexibility for foreign arms majors as the stifling offset limit has been relaxed to Rs 2,000 crore from the existing limit of Rs 300 crore.

This means only in deals worth more than Rs 2,000 crore, foreign vendors need to reinvest a part of the deal value into Indian defence manufacturing sector. “It will take almost 15-20 years to absorb the offset deals, which are already signed (Rs 5 billion) and are in the pipeline (Rs 8-10 billion),” Defence Minister Manohar Parrikar said here.

The DPP 2016 will have a new category of acquisition called “Buy Indian”, to promote indigenous design, development and manufacturing (IDDM). The revised defence procurement procedure was approved by the defence acquisition council headed by the defence minister. The new policy, barring one key chapter, is likely to be notified in two months after some corrections.

The chapter on the selection of “strategic partners” – big Indian private companies that are being encouraged to enter the defence manufacturing space – would be notified separately after receiving the report from a task force that has been asked to determine the selection criterion. The task force is headed by former DRDO chief V K Aatre.

Also, the Defence Ministry would come out with a separate policy document on the blacklisting of foreign firms and the role of a middleman in defence deals. The policy is expected to be a more relaxed one compared to the norms followed by the UPA government.

There are widespread criticisms that India’s defence modernisation was hampered because of Antony, who blacklisted many defence firms, canceled contracts and ordered time-consuming probes into many defence deals when business rivals alleged involvement of agents in a defence deal.