India: Summary Of Expert Committee Report On Amendments To DPP 2013

Last Updated: 5 October 2015
Article by Khaitan & Co

In order to leverage the defence procurement programme to develop India's local defence manufacturing capabilities under the Make in India initiative, a Committee of Experts (Committee) has recommended changes to the 2013 Defence Procurement Procedures (DPP).

Some of the key inputs and changes proposed by the Committee are as follows:

Strategic Partnership with Private Firm

The Committee has suggested a Strategic Partnership Model for the development of critical platforms such as aircrafts, warships, armoured fighting vehicles, etc. The key highlights of the proposed model are as follows:

  • A specially instituted task force would select an Indian Strategic Partner (SP) for the development of a particular platform;
  • The SP would participate as a prime contractor in government to government negotiations with foreign Original Equipment Manufacturers (OEMs);
  • Stringent audit and oversight mechanisms for performance and financial review.
  • Each SP would be restricted to only 1 platform to allow for development of structured capabilities in the Indian industry.

Comment: The Government has already constituted a task force to prescribe detailed selection procedure for SPs under the chairmanship of the former chief of the Defence Research and Development Organisation, Mr. V K Aatre.

Offset Policy Changes

The Committee has recommended, inter alia, the following key changes to the extant offset policy:

  • Extended timeline for discharge of Offsets: OEMs be allowed a minimum of 10 years (with a discretionary allowance of 2 additional years) for discharge of offsets, considering the long gestation period involved in creation of facilities and infrastructure for proper absorption of transferred technology;
  • Eligible Offsets: inclusion of services like maintenance, repair, overhaul, life extension, testing infrastructure and engineering design as eligible offsets, limited to 30% of the overall project obligations;
  • Discharge of Offsets obligations: technology enabling production of critical raw materials be allowed as a valid avenue for discharge of offset obligations as a number of specialized inputs (such as metal alloys) are not available in India;
  • Upstream and downstream discharge: permitting discharge of offset obligations through the entire supply chain of OEMs as well as their group companies, subject to prior disclosure at the proposal stage and vesting of primary responsibility with the vendor;
  • Offsets banking: offset banking be allowed for all avenues of discharge of offset obligations and inclusion of carry forward provisions;
  • Exchange Rate Variation: the introduction of Exchange Rate Variation protection for Indian vendors and Indian sub-vendors. This proposal has already been given effect by the Ministry of Defence (MoD).
  • Indian Offset Partners: for promoting ease of operations, the Committee recommended various changes to offsets related provisions, including change in Indian Offset Partners, be allowed through approval of the Secretary, Defence Production instead of the Defence Minister. This MoD has already revised the selection process of Indian Offset Partners.

Comment: It is encouraging to note that the two amendments made to the DPP 2013 (i.e., accord of exchange rate variation protection and flexibility in designating Indian offset partner) are along the lines of the recommendations made by the Committee. It is expected that the new DPP (expected soon) would consider other material recommendations made by the Committee.

Policy Changes in DPP 2013

The Committee has made both substantive and procedural recommendations to improve the extant defence procurement procedures with the overall objective of increasing participation of domestic private firms. Key propositions made include:

  • Indian Vendor: a unified definition of Indian Vendor consistent with the licensing norms, FDI guidelines and other applicable laws should be incorporated in the DPP;
  • Indigenisation: increasing the ratios of indigenous content (IC) thresholds as follows:

    Category IC requirement
    New Old
    Buy (Indian) 40% 30%
    Buy and Make (Indian) 60% 50%
    Make 40% --
  • Agents/Intermediaries: use of agents be permitted only in civil equipment procurements;
  • Price Escalation: inclusion of price escalation clause in the request for proposal to deal with any delays in contract negotiation and execution;
  • Transfer of Technology (ToT): the option of negotiating ToT after the date of execution of the contract as it may not always be feasible to negotiate ToT in the initial stages of procurement;
  • Single Vendor Situations (SVS): extending the exception available to Defence public sector undertakings and Ordinace Factory Boards in SVS (under Paragraph 70, DPP 2013) to the Indian industry, with a view to provide a level playing field in SVS for 'Make', 'Buy and Make (Indian)' or 'Buy and Make' categories;
  • Life Cycle Cost Methodology: use of the life cycle cost methodology for award of contracts for large systems and projects such as aircraft, warships to encourage an analysis of the long term commercial impact of such acquisitions and determination of a just and equitable price band;
  • Standard Contract Document (SCD): The Committee has proposed a legal and financial examination of the SCD with a view to minimizing uncertainty and scope for disputes for the industry. A list of key recommended provisions is as under:

    • Include definitions clause (Article 2)
    • Incorporate a methodology for calculating advance bank guarantee bond reduction values, as reductions to the bonds are not automatic (Article 3 and 4);
    • Clarify that payment would be withheld only until delay is rectified (Article 13);
    • Include provisions relating to limitation of liability (Article 15);
    • Provide vendor the option to terminate the contract in certain specified events (Article 19); and
    • Options clause to be subject to a separate proposal and mutually agreed price and schedule (Article 32).

Tax Reforms and Export Incentives

The Committee has recommended the elimination of the inverted duty structure on inputs for defence items, along with extension of tax benefits to the defence sector that are currently provided to other core sectors such as power, infrastructure. Key propositions include:

  • Deemed export status: extending deemed export status to supplies from Indian Offset Partners to promote the competitiveness of the domestic industry. This is expected to improve the cost efficiency of Indian manufacturers on account of exemption from customs duties;
  • Export promotion: implementation of several pro-investment measures including single window clearance for defence exports, easy availability of export licences, extended line of credit, relaxation of end user certification requirements, etc.;
  • Corporate taxes: non-taxability in India of income arising from sale of defence items manufactured outside India. Further, proper delineation of goods and services must be made in contracts to allow suppliers to take benefit of relevant exemptions. In this regard the Committee also proposes inclusion of provisions pertaining to direct taxes in the SCD, in addition to existing provisions on indirect taxes;

Comment: The suggested measures are industry-friendly, however, the extent of implementation of these proposals would depend on political will.

In a comprehensive attempt to expose the devil, hidden in 360 pages of detail, the Committee's efforts in deconstructing the shortfalls of the DPP 2013 are laudable. With the Government already having set the wheel in motion, it would be prudent for OEMs, strategists and other stakeholders alike to take note of the Committee report and its contents, in the hope that they would be implemented in the new DPP and would pave the path for a more sustainable and easier to hone Make-in-India construct.

The content of this document do not necessarily reflect the views/position of Khaitan & Co but remain solely those of the author(s). For any further queries or follow up please contact Khaitan & Co at

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.