Seminar on 'DPP 2006 & Make Procedure - Creating New Public-Private Partnerships in Defence Procurement'
October 24, 2006, New Delhi

Welcome Address by Mr. Saroj K. Poddar, President, FICCI

Shri Pranab Mukherjee, Hon'ble Defence Minister
Air Chief Marshal S P Tyagi, Chief of Air Staff
General J J Singh, Chief of Army Staff
Mr. Shekhar Dutt, Secretary, Ministry of Defence
Mr. S Banerjee, Director General (Acquisition), Ministry of Defence
Lt. General H S Lidder, Chief of Integrated Defence Staff to the Chairman
Lt. General Z U Shah, Deputy Chief of Army Staff
Vice Admiral R P Suthan, Deputy Chief of Naval Staff
Major General H S Sehgal, Technical Manager (Land Systems), Ministry of Defence
Mr. V.RS. Natarajan, CMD, Bharat Earth Movers Ltd. and Chairman, FICCI Defence Committee
Dr. Amit Mitra, Secretary General, FICCI
Your Excellencies
Members of the Diplomatic Community
Senior Officers from the Armed Forces, Leaders of Indian Industry, Friends from the media, Ladies & Gentlemen:

I take immense pleasure in welcoming you all to this Seminar on Defence Procurement Procedure (DPP) 2006 & MAKE Procedure - Creating New Public-Private Partnerships in Defence Procurement. Today, we have gathered here to build awareness about the new opportunities for greater participation of Indian industry in defence procurement to achieve the ultimate goal of self-reliance in defence production.

I would like to thank the Hon'ble Raksha Mantri for joining us this morning despite his exceptionally busy schedule. As all of you know, apart from leading the Defence Ministry, Mr Mukherjee leads policy change in many areas as head of over 20 GoMs across a whole range of sectors and issues.

Sir, we must compliment you for accelerating private sector participation in defence. We are pleased to note that out of the 40 recommendations of the Kelkar Committee, 23 have already been implemented under your guidance and 11 are under active consideration or implementation in your Ministry. All these recommendations will encourage private sectors' participation in defence.

Sir, may I also congratulate you on institutionalizing the scheme for Raksha Udyog Ratnas (RURs) or 'Champions' of Industry. We are encouraged by the response to this scheme and we gather that more than three dozen Indian private companies have now applied to the RUR status. Once selected, these companies would be treated at par with Defence PSUs and Ordinance factories for procurement purposes.

I am sure that in the years to come these Industry Champions will play a significant role in the defence sector. At the moment only companies having a turnover of more than Rs 1000 crores are eligible for the RUR status. However, may I urge the Raksha Mantri to throw the net wider to accommodate even medium sized companies based on their credibility and technological capabilities. I say this because some medium companies are working with cutting edge technologies and their capabilities can be leveraged for self reliance in defence.
The formulation of a new 'MAKE' procedure for Capital Acquisition for the first time and the amended DPP 2006 is another major policy change enunciated under your leadership for encouraging indigenous manufacture of defence equipment by Indian industry.

The industry welcomes the Integrated Approach involving Users, MoD and the industry in the 'MAKE' procedure. Also, to encourage private sector participation, a minimum order quantity to sustain the financial viability of development within the time schedule has been advocated in the procedure. Thus a long standing demand of the private sector has been accepted.
The recently amended DPP 2006 is also a welcome step in increasing levels of accountability in defence procurement. The new policy also incorporates features like the 'Integrity Pact', which has been made compulsory for all contracts above Rs. 100 crores to enhance transparency and eliminate corruption.

The modified DPP 2006 will also encourage Offsets. The Offset provision, as we are aware, will apply to all Capital Acquisitions categorized as 'Buy (Global)' or 'Buy & Make' with Transfer of Technology' followed by licensed production, where the indicative cost in RFP is Rs. 300 crores or more.

Also, the setting up of the 'Defence Offset Facilitating Agency' (DOFA) is a welcome step to facilitate implementation of the offset policy. DOFA would assist potential vendors in interfacing with Indian defence industry for identifying potential offset products/ projects as well as provide requisite data and information for this purpose.

Sir, FICCI as a member on the DOFA Committee is working actively with your Ministry to facilitate the implementation of Offset provisions.

Now may I, with your permission, raise our concerns in the recently released procedure:

• Sir, the government has divided procurement through indigenous development into three categories, namely the Strategic, Complex and Security Sensitive Systems (SCSSS), Low Technology Mature Systems and High Technology Complex Systems (HTCS). While the recently announced policy has advocated a consortium approach for HTCS, it has reserved SCSSS projects for DRDO alone. FICCI feels that a consortium approach should be adopted in this category as well. The cost sharing formula however could provide for a lower percentage contribution by the private sector than HTCS as the developmental risks are higher and products may not have civilian markets.
• As suggested by the Kelkar Committee, the government should keenly consider involving 'Users' directly to ensure project accountability. Therefore, the user should be a party to the contract with industry for 'MAKE' of equipment and should be involved in monitoring of the progress of the project. This measure would ensure the accountability of the User for specifications which at present tend to be changed frequently.
• The next issue relates to the "Fall Clause" under the 'MAKE' category, where an undertaking is being sought from the bidder that he has not earlier supplied similar systems at a price lower than that offered in the present bid. We feel that such a Clause should not be a part of the 'MAKE' category, as it would hinder innovation. Price flexibility is a must to encourage upgrades and higher indigenization of products that may have been sold earlier to another User.
• Sir, there is a need to change our mindsets about Offsets. Offsets should not be seen as a means of export revenue for the industry but a tool to build indigenous defence capabilities. We need a new mindset that ensures that most projects taken up for Offsets fall under the 'MAKE' category. Today, Indian industry has the capability to add value to even the most complex technologies at a competitive price and Offsets should aim at enhancing this capability. This would increase technology flow to Indian manufacturers.
• Finally, large DRDO programmes are still being carried out on nomination basis therefore eliminating a level playing field to the private sector. FICCI feels that instead a partnership approach should be followed to promote fair play. PINAKA is a case in point where two private sector companies were allowed to compete and successfully received production orders as well.

Sir, the last time you were here, you had promised us that the procedure for the 'MAKE' category would be formulated. It has not only been formulated but also the timelines have been very strictly followed. Sir, you have proved the intentions of your Ministry to actively involve the industry in defence procurement process. FICCI would be pleased to join you in this journey and forge new public-private partnerships in defence procurement.

I thank you once again and compliment you on your initiatives in involving Indian industry to achieve the ultimate goal of self-reliance in defence preparedness of our country.

Thank You.