New Defence Procurement Policy To Be Effective From Nov 1

Discussion in 'Strategic Forces' started by RPK, Oct 27, 2009.

  1. RPK

    RPK Indyakudimahan Senior Member

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    New Defence Procurement Policy To Be Effective From Nov 1

    New Defence Procurement Policy To Be Effective From Nov 1


    The new defence procurement policy will be rolled out by the government on Nov 1. According to the Union Defence Minister A.K. Antony , the DPP will help in promoting Indian defence industry and will make the acquisitions more transparent.

    This will also enable to create more opportunities for entering into joint ventures with foreign original equipment manufacturers.

    "The current review in the procurement policy aims at promoting and facilitating Indian industry and transparency and integrity in defence acquisitions," Antony said at a seminar on defence acquisition in New Delhi.

    "We have reviewed it and are ready to promulgate DPP-2009 with effect from Nov 1," he added.

    Under DPP-2008, the tender papers were issued only to foreign vendors, who are required to transfer technology to an Indian defence industry, called Production Agency, under 'Buy and Make' category.

    "In order to obviate the above shortcoming, a new category -- Buy and Make (Indian) -- is being introduced, which allows issue of Request for Proposals (RFP) to Indian industries having requisite financial and technical capabilities to absorb technology and undertake indigenous manufacture through transfer of technology and not through research and development," Antony said.
     
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  3. ppgj

    ppgj Senior Member Senior Member

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    Defence Acquisitions: The Question of Systemic Inefficienices and Effectiveness | Institute for Defence Studies and Analyses
     
  4. nitesh

    nitesh Mob Control Manager Stars and Ambassadors

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    Ministry may dilute defence offset policy today

     
  5. SPIEZ

    SPIEZ Senior Member Senior Member

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  6. Mad Indian

    Mad Indian Proud Bigot Veteran Member Senior Member

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    Only that will give them more money behind the back ... they have no incentive to help our indigenous economy......
     
  7. SPIEZ

    SPIEZ Senior Member Senior Member

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    ^^^^

    Couldn't get you mate ....
     
  8. Mad Indian

    Mad Indian Proud Bigot Veteran Member Senior Member

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    they can make serious cash by importing it from foreigners, unlike the arms purchase from indigenous producers... so why should they even indigenize the industry... they have no incentive for that....
     
  9. SPIEZ

    SPIEZ Senior Member Senior Member

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    That's why there is this new defense offset policy. Give Technology rights, which ever country or organisation would do that. It's an EPIC FAIL.
     
  10. nitesh

    nitesh Mob Control Manager Stars and Ambassadors

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    Expectations: Defence Sector

    FICCI has highlighted the following proposals for the Defence Sector in its pre-budget memorandum.

    Deemed Export Status for Defence Projects: At present Deemed Export Status is available to various projects with an intention to encourage Indian Industry manufacture the required equipment and to compete with Foreign Supplier in terms of cost and get credit for the taxes and duties paid over the entire value chain. It also saves valuable foreign exchange of the country and supports the growth of Indian Industry. The Defence Projects ordered under “Buy Global category” are decided on L1 basis after removal of terminal taxes and duties (T&D on inputs as part of cost structure) payable by the Indian vendor (system integrator) and comparing their bids with foreigner’s bids on CIF basis net of all taxes and duties. The foreign company thus benefits on account of input taxes and duties in home country as no country exports taxes, savings on local transportation and transit insurance in India, receipt of LC payment on Bill of Lading against a minimum of 4 to 6 months of delay faced by Indian companies on account of receipt inspection and Make Good of shortages and pilferages during transit and finally accounting system delays. The Indian companies defence projects currently being not treated as Deemed Export Projects are deprived off from the benefits available to the later projects.

    Benefits of Deemed Export project should be extended to all the Defense projects which are awarded through International Competitive Bidding under “Buy Global” category. This will enable Indian Industries to be competitive as the taxes paid in the input value chain can be VATed. It is necessary to create a room for the nascent Indian Defence manufacturers to be able to pay ToT expenses to their foreign partners and yet be cost competitive. Similar benefit should be extended to Indian offset partners as well as to its sub-contractor.


    Defence Procurement & Offsets: In the Defence Procurement Policy (DPP) following changes are required to ensure level playing field between Domestic Private Suppliers and foreign suppliers/Defence Public Sector Units (DPSUs):


    • As per the DPP, for all Buy Indian, Buy and Make (Indian) and Make procurement, Foreign Exchange Rate Variation (FERV) is allowed to DPSUs for all nominated orders and the same is denied to all Indian companies including DPSUs when they compete with Private industry. Since most of the order book of DPSUs continue to be nominated, their risk profile on account of FERV exposure is minimal at portfolio level. Therefore FERV facility should be available to Domestic Private Suppliers also.

    • Payment terms for DPSUs are as agreed in the MOU between Ministry of Defence (MOD) and DPSUs, whereas other domestic suppliers do not enjoy the same terms. This discrimination needs to be corrected.

    • Domestic Private Suppliers have to continue to load local taxes and duties like Excise/CST/Octroi through the value chain which is a handicap against foreign suppliers. DPSUs on the other hand are benefiting through use of delegated powers to get these exemptions for their direct and tierised vendors (input material to DPSU). The benefits available to DPSUs for sourcing duty-free inputs and job work under various notifications should be extended to other major suppliers / system integrators.

    • Offsets Taxation: DPP 2008 stipulates offsets from Foreign vendors on contracts larger than 300 Cr. Offsets are a minimum 30% of the contract value. Current Taxes and duties treatment of offsets is limiting offsets as “parts and subsystems” sold by Indian industry through Physical exports (being part of Global supply chain) and thus misses out on systems and system of systems integration within the country.

    Moreover, offsets at component and subsystem level that are exported as part of global supply chain of foreign OEM do not suffer taxation except CST that can not be VAT’ed. Such a treatment of offsets benefits only SMEs who are manufacturers at component and subsystem level.


    The other aspect of offsets could be to build systems (system integration) in India for a foreign OEM by system houses (Defence licensees). This brings in the Domain expertise and need to be facilitated rather than dissuaded by the current taxation treatment of offsets that are “delivered” in India. Following may be looked at to make the offset policy more efficacious for the country by treating indigenous value addition on par with imports since the same as defence imports would have been treated tax free anyway:

    i) Offsets could also be supply of indigenous systems supplied as part of system of systems being sold by the foreign OEM, and may directly be supplied to Indian Services (not getting physically exported).

    ii) It is also possible that Offsets could be delivered by the foreign OEM in the form of system integration especially where large systems need to be fully integrated and tested in India by the Indian offset partner. This involves passing on the system level know-how that is vital for building industry capability in doing so in India.

    • In either of these cases there is no exemption of taxes and duties, on inputs or output (at sale point), when Offset sales are delivered in India. T&D implications at the hand of Indian Offset Partner add up to >30% of price accounting for the T&D on inputs as well as at point of sale. This makes offsets more expensive compared to the supplies by foreign OEM and moreover dissuades them doing domain level value addition in India. It also effectively reduces offsets from 30% to 21-22% if delivered in India.

    • To avoid this and facilitate indigenous capability building System Offset sales delivered in India should be treated on par with Physical Exports for the purpose of Excise duty and Sales Tax / VAT on output with use of corporate bonds and not involving physical payment of T&D upfront and get it reimbursed later. Credit of Excise duty and Sales tax, octroi, local levies should also be allowed on inputs required to deliver offset sales.

    Alternately all Defence imports need to be “notionally loaded” with customs duty and countervailing duty and procurement from domestic vendors be freed of all duty exemption regimes to remove subjectivity to facilitate higher value addition in India with a partner (defence licensee) of choice of the foreign OEM.


    Set up Rs 100 crores technology fund for SMEs in defence production.


    Exemption from Central Excise Duty on job work inputs for supplies to defence: Presently specified Defence undertakings like HAL, BEL, BDL, BEML etc procure Job Work Inputs without payment of duty for use in the manufacture of items for supplies to Defence, in terms of Notification No. 70/92 – C.E. dated 17-06-1992 as amended. This affords them a cost advantage by savings of Central Excise duty on their inputs as compared to private sector companies licensed to manufacture Defence equipment. It is suggested that the private sector licensed manufacturers of Defence equipment be afforded a level playing field by amending further the Notification No.70/92 – C.E. dated 17-06-1992. The amendment should provide for procurement of the Job Work inputs by the private sector defence licensed manufacturers against ‘Ministry of Defence Orders’ without payment of Central Excise duty on the same lines of the procurement of the Job Work inputs by the specified Defence Undertakings.
     
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