Govt likely to recognise foreign defence companies’ local arms as 'Indian'

The government could allow wholly owned local subsidiaries of overseas original equipment manufacturers (OEMs) to qualify as “Indian vendors” in defence procurement, a long-pending demand of the industry.

This would facilitate their participation and help boost domestic manufacturing, people aware of the matter told ET. The subject was discussed at a meeting of the special task force set up in August to steer next-generation reforms in key sectors. The task force is headed by former cabinet secretary Rajiv Gauba.

The idea is to reduce bottlenecks in procurement and further simplify the defence offset clause, which calls for local investment by foreign makers that win contracts. The current procurement policy that seeks to build a domestic defence ecosystem gives preference to local vendors. Qualifying wholly owned subsidiaries of foreign companies as Indian would bring them on par with locally owned vendors in procurement. This is also expected to encourage more foreign vendors to set up operations in India. Among other measures, the panel also suggested transitioning from a nomination-based system to open tendering in a phased manner, allowing for greater private participation.

Policy Likely Before Budget

Additionally, it proposed standardising the format and timelines of requests for proposal (RFQs) as well as establishing a dedicated defence startup policy to promote indigenous innovation.

The suggestions will be taken up for a final decision by a committee led by the additional secretary and director general, acquisition, which is working on changes in the Defence Acquisition Procedure (DAP) 2020 to cut procurement delays. The revamped policy is likely to be ready before the budget for next year.

“The idea is to promote competition, improve ease of doing business and to reduce redundant processes as India looks to step up defence modernisation,” said one of persons cited.

“The nomination-based procurement will stay for high-value contracts, but the idea is to have more tender-based procurement, which will allow more private participation.”