By Brig B C Sharma (Retd)
New Delhi. ATMANIRBHAR BHARAT, a bold caption on the cover of the Defence Acquisition Procedure (DAP) 2020 leaves the reader in no doubt the noble intent that drives all defence acquisitions. This gets a serious tone given the Pager and the Walkie Talkie blasts undertaken on September 17 and 18, 2024 respectively on Hezbollah operatives.
The repeatedly missed timelines of the engines for Tejas Mk-1A, an engine charge amplifier delayed due to Denmark putting it on export blacklist, and numerous other capital procurements have been delayed due to ongoing conflicts of Russia-Ukraine and Israel-Gaza etc. IC is part of the DAP-2020 to define percentage of imported component and Indian component, forming the basis of Capital procurement. Even the procurements made under Buy Indian (IDDM) or Make India catagories stipulate acquisition with a minimum 50 percent IC content.
Atmanirbharta: Indigenous Content (IC) vs Indigenous Design (ID)
What defines Atmanirbharta? As per the latest amendment, the IC is calculated as Base Contract Price (Total Contract Price minus the Taxes & duties minus AMC/CMC/After Sales Service) minus Foreign Content. Foreign Content includes Direct costs plus Total cost of all services. Also, 50% of this IC shall be material/components/software. If the above is implemented in letter and spirit, reaching the IC as stipulated for Buy (Indian) would be challenging for any vendor.
But, in true sense, Atmanirbharta should simply be the ID to include Patents (if any), Trademarks (if any), Core Technology and Copyrights (if any), AHSP developed painstakingly and with huge investments of time, funds, and skilled manpower by an Indian company. In order to mitigate the dependence on foreign technology which can lead to unacceptable situations in times of external threats, the entire process of design & manufacturing has to under the control of Indian Government . Only then, a product will rightfully earn the Tag Mark of Atmanirbhar product.
Impact of IC based on Cost on the Indian Industry
Suppose the Services require a product developed by the Indian Industry, with 100 percent capability to design, develop and manufacture with Indian Intellectual Property rights (IPR), then the system should acquire it with due advantages to the manufacturer.
However, instead of the rightly deserved categorisation of Buy (IDDM), the procurement case is categorised Buy (Indian) like in the recent cases of Fast Track Procedure (Emergency Procurement), and that is a disincentive to the manufacturer.
The impact of this categorisation would result in the following disadvantage to Indian Vendors:
a) The Indian players who did not have the ID capability will now contact Foreign Original Equipment Manufacturers (FOEMs) to bring their products, the IC content being 60% for vendors under Buy (Indian) & 50% for those eligible under Buy (IDDM).
b) The IC requirements (not the ID) are mostly spread over low-end/low- technology items and peripherals to reach the required percentage. The core technology which is the Brain and Heart of any system would be the Copyright of the FOEM.
c) The FOEMS (presumably big players), once in the game, will adopt “predatory pricing” to edge out the fledgling Indian who would have painstakingly developed the ID.
d) Going in for such FOEMs will not only mean ‘fund-flight’ out of the country (royalty/license fee is a major cost) but also be a great discouragement to the Indian players who built themselves up over the years to be fully compliant. That will be like a stab in the concept of “Atmanirbhar Bharat”.
Present Procurement Process
The present process of procurement when it comes to not buying through Buy (IDDM) will have a number of issues:
a) Including more Vendors to Increase Competition. The standard excuse given is that as the number of Indian players that have developed the ID (IDDM) is small (one or two), we need to have more competition; hence Buy (Indian) categorisation is better. This is Disadvantage India. Notably:
(i) Indian Industry, especially in products that involve Electronics, is mature now. Maybe the numbers are few, ay matured, though may be few, but others are learning to stand on their own feet after the government has opened up the Defence Sector to participation by private Industry. The private OEMs who have struggled to become Buy (IDDM) compliant are indeed few, but these exceptionally few companies need hand-holding and support to stand on their feet. After all, even the foreign Global Giants were once supported by their Governments.
(ii) The Buy(IDDM) very much allows single-vendor situation.
(iii) Not following Buy (IDDM) is undermining genuine indigenous Indian companies that have built the Indian IDs, in favour of Collaborators who tie up with FOEMs only to show compliance by giving Vendor Self Certificate of IC.
(iv) If a genuine Indian IDDM company gets an order, it automatically qualifies for export wherein the nation is benefited in terms of foreign exchange earnings and the technological independence inherent to it.
b) Single Vendors will Dictate Cost. Another argument is that as IDDM players are few, it results in single/dominant vendors situations. Then, they dictate the costs. Better to have more competition under Buy (Indian) to moderate the prices. Accordingly:
(i) In the present scenario, the Indigenous industry is ‘coming-of-age’, so surely the companies who will finally make the grade under IDDM will be far and few and may even be single – vendors.
(ii) Thoughtfully, the IDDM procedure under DAP-2020 does permit single-vendor situations. It is unlikely that a single vendor company will take undue advantage and quote very high. The world benchmark costs are easily accessible. The IDDM companies can be forced to match benchmarks. However, it needs to be understood that the Foreign OEMs have well-established world markets while the Indian companies would have invested in the R&D for the equipment and the pricing would naturally have the amortized cost of development. With assured future orders, the costs can be brought down.
(iii) Another argument is that we do not want ‘dominant players’. We want more competition (under Buy – Indian) which is lopsided. Actually, India requires ‘dominant players’ who not only can meet Indian demands but could also become ‘global champions’ for the world for their IP-owned products, earning precious foreign exchange for the country.
(iv) In Defence & Aerospace procurement, where there is only one buyer, i.e., the Indian Armed Forces, expecting multiple players is not appropriate. Even globally, there are only a few sellers of major defense products. Therefore, the argument of having multiple players must be seen in its correct perspective.
(v) The bottomline is that a genuine IDDM Company needs to be protected and nurtured against foreign companies. That will help promote Indian aspirations for technological independence.
c) Lack of time. The argument of lack of time (especially during the procurement under the EP/FTP route etc.) for carrying technical scrutiny of the vendor’s claim of IC and indigenous design (and hence going for Buy Indian) cannot stand the test of logic. Verification of IDDM (the software, mechanical and electronics designs, etc.) claims can be done very quickly by competent officers during the trial.
It would be pertinent to levy heavy penalties on companies that make false claims, including blacklisting and forfeiting the deposits, if any. If Atmanirbharta is to grow, then IDDM has to be a hard reality, then Indian companies with Indian IP or AHSP must be promoted as enshrined in the spirit of Buy (IDDM) in DAP 2020.
Recommendations
a)The criteria for Indigenous Content should not be on a cost basis, but keeping the spirit of Atmanirbharta as the focus. The Indian entity must own the design of the main equipment and should have the technology and capability to implement equipment upgrades. Indigenous Design should be verified (via documents/on-site inspection) by a team duly nominated by the Ministry of Defence. The ID for a typical electronics system could be broadly covered/ascertained in the following manner:
i) Patents on systems and methods if any, Chipsets/RTL IP, board level Hardware schematics and Gerber that captures the design know-how, Software modules and stacks that are indigenously designed and developed, Matlab modules for signal processing and waveforms.
ii) In addition to the above, weightage be given to R&D work (documented) undertaken in various other projects, EMS capabilities like PCB manufacturing, assembly, processes-driven approach, certified infrastructure etc.
iii) Suggestion is to evolve the ‘weighted average’ approach for measuring the depth of design know-how and dependency on foreign agencies for sourcing of materials/parts/components necessary for industrialization and product support right up to the end of equipment life.
vi) Increased interaction with detailed in depth assessment/study should be undertaken to understand the capability/strength of the industry to develop the system.
v) The requirement of defining critical- niche- technology which should come under the ambit of Indigenous design should be worked out in consult with the industry during the EOI/RFI process and clearly elaborated in the RFP.
b) Buy (IDDM) should be the first option for any procurements. Even if there is only one vendor who can meet the requirement, the option should be exercised after being duly convinced of the capability to deliver the desired equipment, and in the required time frame. The capability to Design, develop and manufacture these equipment/products should be surveyed, assessed and recorded.
c) Only after ruling out the option of Buy (IDDM) should the three Services explore the remaining options like Buy (Indian) etc.
d) Present procurement procedure only caters for L1 criteria which is selection based only on commercial basis. It is recommended that selection of vendor should also cater for better specifications offered by Indian industry (T1). T1 should be provided 50% weightage in vendor selection with 50% weightage given for price quotation. The criteria will ensure that armed forces get best of available technology.
e) In tenders where the Buy (IDDM) vendor with indigenous design has participated & is not the lowest bidder by price (i.e. the ‘L1 bidder’), he should be allowed the option to match the price of the L1 bidder.
f) Meeting the IC criteria of 60% in Buy (Indian) is extremely difficult as laid down in para 1 of Appendix B to Chapter I, DAP- 2020. Internal audits may be undertaken, in random cases of projects implemented, to ascertain the correctness of required certifications.
g) If an equipment is available with indigenous technology, BNE or BFE option from the vendor having the indigenously developed equipment should not be foreclosed.
h) A consortium of t wo or more vendors should be encouraged for achieving higher indigenous design component.
i) Indigenous design as defined in the RFP can be quantified either by value or as a percentage and can form an assessment methodology in TEC or as part of EPP.
— [The author is Sr General Manager, Data Patterns (India) Ltd.]
