Indian defence minister Manohar Parrikar © Press Association Images
Indian defence minister Manohar Parrikar © Press Association Images

India reveals new defence procurement policy

27 January 2016

Defence equipment made in India will be prioritised by the government’s new defence procurement policy.

Three key amendments have been made to the Indian government’s Defence Procurement Procedure, including a focus on “indigenously designed, developed and manufactured” defence equipment, India’s defence minister Manohar Parrikar said when he unveiled some aspects of the policy.

The government has agreed to fund 90% of the design and development costs for Indian companies’ major defence systems, in order to encourage research and development in the country’s private sector. Small to medium-sized companies in India will be given up to Rs190m. A fifth will be given in advance and the contract awarded in two years. If the company does not win a tender the government will reimburse its expenses.

In addition, if equipment is designed in India at least of its 40% components at manufacture must also be Indian. If it hasn’t been “indigenously designed”, 60% of its components must be manufactured in India, the country’s Department of Defence, stated.

However, the policy also raises the threshold of the offset clause, meaning that foreign companies holding contracts worth more than Rs20bn (£207m) must undertake 30% of manufacturing for those contracts in India. The previous threshold was Rs3bn (£31m).

Parrikar said the threshold had been raised because it was resulting in increased costs for the government of between 14% and 18%, and Indian companies were unable to meet demand.

The final procurement policy will be published in two months’ time.

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