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New Defence Acquisition Procedure of 2020 (DAP 2020)

Topics Covered: Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

New Defence Acquisition Procedure of 2020 (DAP 2020):

Context:

DAP 2020, which will govern the procurement of defence equipment from the capital budget, was recently unveiled.

  • The new policy will supersede the Defence Procurement Procedure of 2016 from October 1.

Highlights of the new policy:

  1. Reservations for Indigenous firms:

The policy reserves several procurement categories for indigenous firms.

  • DAP 2020 defines an “Indian vendor” as a company that is owned and controlled by resident Indian citizens, with foreign direct investment (FDI) not more than 49 per cent.
  1. New Buy (Global–Manufacture in India) category:

This stipulates indigenisation of at least 50 per cent of the overall contract value of a foreign purchase bought with the intention of subsequently building it in India with technology transfer.

  • Meeting the difficult indigenisation requirement would force the vendor to build the equipment in India, rather than supply most of it ready-built from abroad.
  1. Greater indigenous content:

It promotes greater indigenous content in arms and equipment of the military procures, including equipment manufactured in India under licence. In most acquisition categories, DAP-2020 stipulates 10 per cent higher indigenisation than DPP 2016.

  1. Measuring indigenous content:

Indigenous content will now be calculated on ‘Base Contract Price’, that is Total Contract Price, less taxes and duties.

  1. Import embargo list:

The “import embargo list” of 101 items that the government promulgated last month has been specifically incorporated into DAP 2020. (An embargo is a government order that restricts commerce with a specified country or the exchange of specific goods.)

  1. Offset liability:

The government has decided not to have an offset clause in procurement of defence equipment if the deal is done through inter-government agreement (IGA), government-to-government or an ab initio single vendor.

  • The offset clause requires a foreign vendor to invest a part of the contract value in India.

InstaLinks:

Prelims Link:

  1. What is offset liability?
  2. What is Base Control Price?

Mains Link:

Discuss the significance of the policy.

Sources: PIB.