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DRDO's New Procurement Manual (22 October 2020)

DRDO's New Procurement Manual (22 October 2020)

Why in News:

Defence Minister Rajnath Singh released a new version of the Defence Research and Development Organisation (DRDO) Procurement Manual 2020 on Tuesday.

Context:

The previous Procurement Manual was modified in 2016. This is being done to encourage more participation of Indian industry, including start-ups and micro, small & medium enterprises (MSMEs) in defence research and development, the statement added. Some more enabling measures of PM-2020 are exemption of bid security and performance security up to Rs. 10 lakh, no negotiations for commercial off-the-shelf items/services wherever price discovery is happening through market forces.

Background:

In May, Finance Minister Nirmala Sitharaman rolled out a number of reform measures for the defence sector including making separate budgetary outlay to procure Indian-made military hardware, increasing FDI limit from 49 per cent to 74 per cent under the automatic route and generating a year-wise negative list of weapons which will not be allowed to import.

Summary of the Debate

Procurement Manual 2020:

  • It talks about the how lowest bidder the L1 called in the government parlance, if the lowest bidder cannot complete the contract, the contract will go to the second lowest bidder. Under the existing rules, the L1 in case is unable to fulfil the contract, the contract goes to the tendering process and it takes years for the tendering process to be complete. Now, the second lowest bidder will come in to play automatically and he will be asked to supply the goods.
  • It talks about the Advanced Payments. Defence equipment by nature is expensive and Industries naturally in India functions on credit they have taken from the banks and those credit interest rates are huge for the industry to pay back. Defence equipment is a long gestation period in a long manufacturing period, any product to make it takes years to rectify and it was necessary to provide them some incentives.
  • Contracts will be given to the people who have more MSME structures, the DRDO bringing in more people to the MSME structure and the MEMEs are backbone of India’s goal of being AatmNirbhar.
  • There are exemption of bid security and performance security up to Rs 10 lakh, no negotiations for commercial off-the-shelf (COTS) items/services wherever price discovery is happening through market forces.
  • In the new PM-2020, the liquidated damage (LD) rate for development contracts has been reduced.
  •  The delivery period (DP) extension process has been simplified for faster decision making.
  • Many of the internal procedures have been further simplified for faster engagement with industry.

India as a Defence Market:

  • India is one of the most lucrative markets for global defence giants as it figured among top thDRDO tweaks manual for 'self-reliance' push - india news - Hindustan Timesree importers of military hardware in the world for the last eight years.
  • The defence industries is a huge market, the target which the defence production and including export has been set up by government of India today, it’s about $ 25 billion in the next 5 years.
  • Similarly, the government spending which is going to be on defence including the defence R and D is going to be of the order of $130 billion in the next 5 years.
  • The Ministry of Defence (MoD) is giving a lot of flexibility in their procurement system, they have already promulgated more than 100 items not to be imported and that gives a great market available today and DRDO has put 108 items which they want directly to procure from the industry to make device, component, etc.

Significance of the Procurement Manual 2020:

  • It will facilitate faster execution of R&D projects. It will go a long way to facilitate participation of industry in various R&D projects.
  • Flexibility is the common denominator with which the Procurement Manual 2020 has been promulgated in which many simplifications of procedures have been done and also the empowerment of project directors in DRDO, they have done internal structures modifications to functional the improvement in terms of decision making.
  • There is a DP (delivery period) for each cluster and also, they have project or program directors, they are empowered to take the decisions.
  • The private participation is going to come and design, development, prototypes even tested evaluation.
  • Government is also thinking about GOCO (Government Owned and Company Operated) kind of systems.
  • DRDO now is looking for a new paradigm, they have internally reorganized, functionally empowered and with this new policy of PM 2020, the tremendous faster activities can be achieved. The government itself has given that autonomy and flexibility to a large extent to a defence department which is DRDO and it is a great welcome change from Ministry of Defence, GoI.

Government Owned Contractor Operated (GOCO) Model

  • The GOCO model was one of the recommendations of the Lt. Gen. DB Shekatkar (Retd.) committee to enhance combat capability and re-balancing defence expenditure.
  • In GOCO model, the assets owned by government will be operated by the private industries.
  • Under the GOCO model, the private companies need not make investments on land, machinery and other support systems.
  • The missions are set by government and the private sectors are given full independence in implementing the missions using their best practices.
  • The main advantage of the model is that the targets are achieved in lesser time frame. Also, it will boost competitiveness among the private entities paving way to newer technologies.

Major aspects of Procurement Manual 2020:

  1. Value Chain: Right from design and development for which this current Procurement Manual 2020 lays a lot of emphasis on. It will help to encourage design and development in the MSMEs and the startup sector. There are so many concessions which have been given up to projects worth 10 lakhs and the startup community which is incubated in the IITs and Engineering colleges, they are very bright and come up with solutions, but they do not have the cash.
  2. Supply Chain: When a startup or a MSME makes a equipment which is to support the indigenization program then the supply chain that is a part of it which is also called as Preferred Development Partner in defence, always becomes a part of that system and then it is not only beneficial for that particular startup or MSME to benefit but also to entire supply chain which gets benefit.

Way Forward:

  • The private sector augmentation with the defence PSUs is very vital for manufacturing and development.
  • Besides MSMEs, academic institutions like IITs, NITs and private universities should also integrate with Defence PSUs.
  • India need to have more major industries like L & T and Tata.
  • The new DRDO Procurement Manual will facilitate the indigenous Defence Industry by simplifying the processes and ensure their participation in design and development activities.

Important points made by the Guests

W. Selvamurthy, Former Chief Controller, R&D, Defence Research and Development  

  • India is very vibrant and it is looking for self-reliance and critical defence technology and Indian government has promulgated the AatmNirbhar Bharat, the startup India, stand-up India, Make in India, all this is going to create an ecosystem for defence Industries particularly.
  • DRDO is the major R & D hub for the defence technologies and defence product.
  • DRDO has evolved over a period of time, today they make critical strategic defence technologies like the strategic materials for nuclear delivery, we also have missiles, aeronautics radars, sonars, torpedoes, electronic warfare and chemical, biological, radiological nuclear protection and life support technologies.
  • DRDO is also working with more than 1800 industries and most of them are MSMEs and today major industries like L & T, Tata, Mahindra, Reliance are investing in R & D.

Ratan Srivastava, Defence Industry Expert 

  • Private sector has always played a major role as partners in the defence manufacturing ecosystem in India.
  • It is more important for a private sector to have a net positive EBITDA because if they do not have positive earnings, they will not be able to sustain themselves.
  • This is a huge opportunity for entire value chain starting from design and development and research and development is something which really needs focus in India and this PM 2020 aims to definitely give a boost to that.
  • Aatm Nirbhar Bharat is all about supporting, self-reliant and a self-sustainable India and it is not a closed India which people always mistaken it for.

Ajay Banerjee, Defence Correspondent, The Tribune

  • The AatmNirbhar Bharat does not mean that the foreign companies have been shunned out. The Make in India project is a very big opportunity for foreign companies to come here and set up a plant.
  • The participation of Industry in design and development is very critical because the private industry does not have the enough money to spend on R & D.
  • A self-sustaining India requires the efforts of the private sector, the public sector and everybody together to come up and make India shine the way it should be.

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