India’s defense ministry has unveiled a new set of rules aimed at boosting the country’s indigenous defense industry by making procurement from foreign vendors only a last option.

The Defense Acquisition Council (DAC), the top decision-making body of India’s defense ministry, has cleared amendments to the Defense Procurement Procedure (DPP) to give priority to domestic public and private sector firms for major military procurements, thus reducing the country’s dependence on imports.

“The only way forward for the country is rapid indigenization of defense products, with both the public and the private sectors playing pivotal roles in this endeavor,” Defense Minister A.K. Antony says. Increased indigenization is important for the armed forces so that they have access to reliable supply chains in times of urgent need, Antony says.

Under the amended rules, the DAC has laid down a preferred order for procurement, with direct purchase from abroad as the final option. “Preference for indigenous procurement has now been made a part of DPP through an amendment that provides for a preferred order of categorization, with global cases being a choice of last resort,” defense ministry spokesman Sitanshu Kar says.

The first option will be to buy from India, followed by “buy and make India,” in which private and public sector firms can team with foreign vendors to produce foreign-developed military equipment within the country. Other less desirable options include “buy and make with transfer of technology,” and “buy global,” Kar says.

The armed forces will have to clearly state the reason for choosing options farther down the list. The new rules say that all deviations from the procurement procedure will now need to be approved by the DAC, which is headed by the defense minister and includes three service chiefs as members. Until now, the defense minister alone could give such permission.

The new policy will also end the monopoly of state-owned firms and ordnance factories in the defense sector, since private firms will be allowed to compete for maintenance and repair of systems procured from abroad.

“This is expected to have a positive impact on private sector participation in maintenance, repairs and overhaul work,” Kar says. 

The new rules are also aimed at boosting transparency in defense deals, to avoid controversies such as the bribery scandal surrounding the AW101 VIP helicopter deal with Finmeccanica subsidiary AgustaWestland

In February, Defense Minister A.K. Antony said India would reconsider its policies on defense production and procurement to lessen reliance on imported weapons and make vendors more accountable. India opened its defense industry for 100% private sector participation, subject to licensing, in 2001. Under the new rules, the defense ministry has added more clarity to the licensing process by saying that dual-use items will not require licensing.

The government’s decision was welcomed by the Federation of Indian Chambers of Commerce and Industry (Ficci). “Clarity in the definition of indigenous content and resolution of issues related to taxes and duties with respect to the private sector are welcome steps,” said Didar Singh, Ficci’s secretary general.

The current Indian administration is stressing private participation in the defense sector, and big industrial houses such as the Tata Group, Reliance Industries, Mahindra and Larsen & Toubro are entering the defense manufacturing sector.

India currently makes 70% of its defense purchases from foreign companies.

India took the lead from China in 2011 as the world’s largest arms importer and has remained there, according to the rankings of Sipri, a Stockholm-based defense think tank.

India has spent 782 billion rupees ($14.5 billion) on arms imports since April 2009 from countries including the U.S., Russia, Israel, Germany and the U.K., according to the defense ministry.

AW101 photo: AgustaWestland