India prepares to launch new defence procurement rules

India’s new defence procurement rules, which are expected to be issued soon, will put greater emphasis on supporting small businesses in India but higher levels of foreign defence investment (FDI) in local companies that undertake prominent military projects might not be permitted, a senior defence acquisition official has indicated.

In comments in a recent webinar hosted by Associated Chambers of Commerce and Industry of India (Assocham), Apurva Chandra, the director general of acquisition within the Indian Ministry of Defence (MoD), confirmed that the MoD’s Defence Procurement Procedure 2020 (DPP 2020) will be published shortly to replace the existing DPP 2016. A draft of the new guidelines was issued by the MoD in March that invited stakeholder feedback.

Chandra said in comments published by Assocham that the overall focus of the DPP 2020 is on “increased indigenisation, giving impetus to Indian industry, and at the same time providing adequate capabilities to the armed forces”.

That impetus, he said, would be partly channelled through a new scheme – to potentially be contained within the DPP 2020 – to ring-fence defence contracts for micro, small, and medium-sized (MSMEs) companies. In the defence sector, India has about 8,000 MSMEs, according to the MoD.

Chandra said in the webinar, “We are contemplating to reserve any procurement [valued at] less than Rs 50 crore [INR500 million or USD6.6 million] per year for MSMEs within India if such products are available within the country.” Incentives would also be available to foreign contractors that engage with Indian MSMEs through proposed updates to India’s defence offset policy, which is also part of the new DPP.