India to import hardware to modernise its army, navy air force only in exceptional circumstances

India will henceforth import military hardware to meet modernisation requirements of its army, navy and air force as well as its coast guard only in exceptional circumstances, Prime Minister Narendra Modi's government has decided.

As the Russia-Ukraine conflict renewed focus on India's dependence on the former Soviet Union nation for weapons and ammunition, the government has moved to further promote its “Make in India” programme in the defence sector by lessening imports from foreign companies. It amended the Defence Acquisition Procedure (DAP) 2020 to make it mandatory to meet all modernisation requirements of the Indian Army, Navy and Air Force as well as the Indian Coast Guard with indigenously manufactured equipment “irrespective of the nature of procurement”.

“Import of defence equipment and sourcing from foreign industry of capital acquisitions should only be an exception and undertaken with specific approval of Defence Acquisition Council (DAC) or the Defence Minister,” according to a press release issued by the government in New Delhi. Defence Minister Rajnath Singh, himself, heads the DAC.

The Ministry of Defence (MoD) had earmarked 64 per cent of its Capital Acquisition Budget for domestic industry in the financial year (FY) 2021-22. It, however, surpassed the target and utilised 65.50 per cent of Capital Acquisition Budget for procurement of defence equipment indigenously manufactured in India.

The DAC also approved other amendments in the DAP 2020, including the one to dispense with the requirement of the Integrity Pact Bank Guarantee (IPBG) for domestic defence companies participating in a government procurement process. According to the amended procedure, the Earnest Money Deposit (EMD) would be taken as a bid security for all acquisition cases with Acceptance of Necessity (AoN) cost more than Rs 100 crore. The EMD will be valid for the selected vendor up to signing of contracts and returned to remaining vendors post declaration of selection.

“Post contract, Integrity Pact will be covered through the Performance Cum Warranty Bank Guarantee (PWBG). Further, as per extant Government of India policy, EMD is not required from Micro and Small Enterprises (MSEs),” stated the MoD, after acting on an advice from the Ministry of Finance to reduce the financial burden on the country's defence industry.

The DAC also approved amendments in the DAP 2020 to encourage wider participation and broad base indigenous defence manufacturing sector in the country. The total order quantities in acquisition cases would be split between short-listed vendors, wherever viable. Further, the other technically qualified bidders, who would not be awarded the contract, would be issued a certificate by the defence services, indicating that the product had already been successfully trial evaluated, to facilitate vendors to explore other markets.

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