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READING LIST

MAY 2016 ISSUE

Force Magazine
Guest Column - Force Magazine
From India, For India

‘Make in India’ can be possible if the indigenous content route is adopted
 

Maj. Gen. Mrinal Suman (retd) Maj. Gen. Mrinal Suman (retd)

Undoubtedly, the most practical way of developing indigenous industry is through the progressive increase of the local content in all products. Any country that aspires to produce duly integrated defence systems has to start at the base level of manufacturing components and thereafter graduate to producing sub-assemblies and sub-systems. There is no short-cut to it. Having recognised the inescapability of the said progression, India’s decision makers have been stressing the importance of the indigenous content for decades.

Defence Procurement Procedure - 2013 (DPP-2013) has laid down minimum percentage of indigenous content for each acquisition route. In case the whole quantity is purchased from an Indian vendor, both the product and the prototype offered for trials must have a minimum 30 per cent indigenous content.

In cases where a limited quantity is procured from an Indian vendor followed by licensed production/indigenous manufacture of the bulk quantity in the country, indigenous content cannot be less than 50 per cent. When a product is developed indigenously (based on proven technologies) under the ‘Make’ route, the prototype must contain a minimum 30 per cent indigenous content.

It must be mentioned here that the above mentioned percentages are on cost-basis. As per DPP-2013, indigenous content for a product should be arrived at by excluding from the total cost of that equipment direct and indirect costs (including freight, transportation and insurance) of all materials, components, sub-assemblies, assemblies and products imported into India; direct and indirect costs of all services obtained from non-Indian entities/citizens; all licence fees, royalties, technical fees and other fees/ payments of this nature paid out of India; and taxes, duties, cesses, octroi and any other statutory levies in India of this nature. This norm is applicable to all stages (tiers) of manufacture and production/assembly.

Expert Committee Recommendations
The Expert Committee constituted under Dhirendra Singh in May 2015 has also dealt with the issue of mandatory indigenous content in considerable detail. It felt that the vendors should be given incentive to offer products with higher indigenous content. For that, it considered various alternatives, like splitting the order between the lowest bidder and the vendor offering the highest indigenous content; awarding the contract to the vendor offering product with maximum indigenous content provided he matches the lowest bidder’s quote; offering price preference for higher indigenous content; and raising the minimum level of indigenous content level on case to case basis.

After examining all the above option and obtaining inputs from various stakeholders, the Expert Committee realised the unfeasibility of adopting the first three courses. As determination of exact quantum of indigenous content is a convoluted exercise, it was felt that the decision making process may come under allegations of subjectivity with resultant litigations. Therefore, the Expert Committee has recommended that the most prudent course of action for the present is to let the categorisation committee increase the floor level of indigenous content in individual cases on the basis of past experience.

In addition, the Expert Committee is of the view that the minimum level of indigenous content specified for each category should be upwardly revised every two years, along with the biennial review of DPP. It feels that a period of two years is adequate for the stabilisation of the given norms to integrate local competence.

The Committee has suggested that the increase be progressive: the present level of 30 per cent and 50 per cent for ‘Buy (Indian)’ and ‘Buy and Make (Indian)’ categories should be increased to 40 per cent and 60 per cent respectively in DPP-2015 (likely to be issued in April 2016). Similarly, the minimum levels should be further increased in the next biennial review of DPP in 2017. In rare cases, the Categorisation Committee may recommend lower or higher threshold of indigenous content, both for the total contract and/or for its sub-parts, with detailed justification duly recorded.

As overseeing of quantum of indigenous content is a big challenge, the Expert Committee wants the Department of Defence Production to set up a credible and effective mechanism to assess the indigenous content in different contracts, so that the compliance of provisions of DPP can be effectively assessed, monitored and enforced during execution of contracts. The said requirement assumes even more importance in the light of penal provisions for non-compliance.

 
 
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