Defence Industry

The Contours of IDDM: A user’s Perspective
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Issue Vol. 31.3 Jul-Sep 2016 | Date : 23 Dec , 2016

What is the implication of this? The vendor has to dive deep. Make sure that besides his core Indian-design, which is the raison d’être of his bidding for the IDDM, he must involve a larger base of smaller players who will pitch in to produce many a small things in range and depth belonging to the MRLS, SMT and STE so that the elusive figure of 40 per cent is carried right down to the last nut and bolt, as mandated in the IDDM category.

(b) The second challenge area is the bigger one and spreads on both sides of the fence. It relates to proving and certifying the IC. The rules have it, that it is the responsibility of the vendor to prove the extent of IC and it is the responsibility of the buyer to verify whether the claim made by the vendor is correct. How will the buyer do it? It is envisaged that for doing this a Committee of DRDO scientists, will be formed. A few suggestions:

  • The Committee need not only comprise the DRDO scientists but could have a wider base of SMEs who have detailed knowledge of the Indian market and its current threshold of capability in the vertical in which the procurement is being done.
  • Though it may sound weird, it might be in place to have members from the peer group in the said committee. Nobody can play devil’s advocate better than a peer stakeholder in an each other/one-another arrangement. It goes without saying that the interaction among these players has to be strictly through the Chairman of the Committee and not ‘one-on-one’ or ‘one-on-many’ mode.
  • What about some Service experts? It will be a must to include professional service officers who, based on their core competency and technical knowledge of the defence industry at large, will know exactly what system capability is IC and what is not.
  • It will also be essential to have onboard, the SMEs from the Acquisition (Acqn) Department, as well as, the Department of Defence Production (DDP).
  • I would, therefore, visualise the said Committee to be a standing arrangement with a dynamic composition. There will be a requirement to have a pool of prospective members/SMEs on a standing list. Out of this superset, a specific selection of scientists, market experts, peer members, academia representatives and service officers will have to be put together, each time a requirement arises to assess the IC in an IDDM procurement case. The same will have to be done a priori (i.e prior to fielding the case for categorisation) as stated in the DPP.
  • Despite all that is said here, there will still be a large component of assessment which will have to be passed, based on certifications and assurances on the trust vote by the vendor.

An Apparent Contradiction

There is yet another thing about the IDDM percentages and IC content which stands on an apparent contradiction which actually is not there. Let me explain how.

Taking the reference point of IDDM stipulating the twin requirement of Indian design, development and manufacture with 40 per cent IC on the cost basis of the total value of the contract, the perceived contradiction runs like this:

  • ‘Buy Indian’ category also provides an option to the Indian vendor to provide products having a minimum of 40 per cent IC on cost basis of the total contract value.
  • Also, since there is no mention of ‘Indian Design Development and Manufacture’ in ‘Buy Indian’, products not of indigenous design, development and manufacture, which need to have 60 per cent IC under IDDM, can go through in this category with only 40 per cent IC.
  • Also, in yet another category of procurement called ‘Buy Global’, an Indian vendor participating in the bid process can field Indian equipment for outright purchase without any stipulation of percentage of IC. It is another thing that based on what percentage he ultimately fields, whether or not he will attract offset obligations on the Foreign Exchange component. In DPP 2013, this was 50 per cent. In all probability, the same will be retained, as and when the offset obligations are pronounced for DPP 2016.

While all the above facts are arithmetically accurate, I have some take on it:

  • The whole game lies in initial categorisation which is recommended by the SHQ and awarded by the DAC working through the approval chain of the SCAP cycle (SCAPCC, SCAPCHC, DPB, DAC).
  • It is not for the vendor to decide what to provide under what category of procurement and variations thereof; it is for the SHQ to initiate, procurement chain to endorse the SHQ (or recommend a change of category) and the approving authority to grant a particular category.
  • In the above award, the drivers are likely to be as under:

– Since the primary emphasis is on Indian Design, the first port of call will always be IDDM where the percentages of 40 and 60 will stand in their own verticals and merit with no mutual contradiction.

– If the collective wisdom driven by realities on ground has it that the Indian design is not possible/doable, the procurement will slip to the next category of ‘Buy Indian’ where the 40 per cent IC ( with no compulsion of ‘Indian Design’) will stand unambiguously, again without any mutual contradiction

– And finally, in cases where the situation is so urgent as to warrant an outright purchase (Buy Global), for a time urgent and critical need, no percentages matter in any case, only the procurement must happen yesterday. That is the reason ‘Buy Global’ is not ridden with any percentages whatsoever. It is another thing that the SMEs are trying to find an oblique connection on the offset route. Well, that is a standalone figure of 50 per cent and above, when offsets will kick in. Below that, no offset obligations.

  • It can, therefore, be seen that while prima facie and taken arithmetically, there appears to a contradiction of sorts in the percentages in IDDM/Buy Indian/Buy Global, there is actually no contradiction when each procurement category is seen as one vertical and processed within itself.

IDDM – No Time to Design and Develop?

There is this one more thing about the IDDM, related to ‘Indian design’. It is to be clearly understood that the procurement under this category is outright purchase. It, therefore, does not lend itself to the commonly understood definition of ‘design and development’. In that, it will not unfold in the typical sequence of SHQ laying down the requirement of a product and the vendors commencing the cycle of designing with the required product getting ready sometime in the future. On the contrary, it will go like this – requirement floated, vendors respond with equipment ready; period. If this be the pattern, how will IDDM ultimately lend itself to classic design and development? I would think it this way:

  • The design and development exercise has to be started by the prospective vendor with a time lead so that the product gets ready in around the same time frame when the need for it is put out by the SHQ. How is this to happen?
  • This is where the need and relevance of the Technology and Capability Prediction Roadmap (TCPR) by HQ IDS finds its place. The prospective vendors must analyse the same well into the future (considering lead times to develop) and extract from it, the business opportunities that exist for times to come.
  • For selecting prospective business opportunities the tendency to go the whole hog should be avoided. After all, what are the JVs and MoUs for? Especially in an eco-system where the foreign OEMs are going whole hog to immerse themselves in the aroma of ‘Make-in-India’ and are singing such songs as ‘Made/Already Making in India’.
  • Where else the prospective vendors can get the wind of what is required by the Services day after tomorrow? Seminars/ Conferences/Workshops/Round Tables; where else? It is indeed heartening to see CENJOWS/ CLAWS/ CAPS/ USI/ IDSA/ VIF and a host of other professional think-tanks, study centres and institutes regularly organising the above said activities in conjunction with major industry houses such as CII, the FICCI, the ASSOCHEM and the PHD et al, duly supported and patronised by the MoD, HQ-IDS, SHQ, DPSUs, the industry both foreign and Indian besides a visible media in both AV and print.

Click to Buy: IDR Oct-Dec 2016

While the above is one reality, what follows is another. Most of the above events are conspicuously devoid of actual stakeholders as well as cutting-edge decision makers. Who are these persons? The concerned Minister, officials from the dealing branch of MoD, decision makers from the Acqn and DDP branches, DGs of the Arm/Service concerned, DRDO/DPSU reps at the appropriate levels of seniority and more.

Seeing this trend over time, I have experienced, that even the CEOs/decision makers from the vendor entities shy away and send junior executives. The entire purpose of crystal gazing by the Services and its likely take-away effect for the industry is lost, rendering these important professional exercises impotent. The above needs to be corrected and the only way to do this is probably self-realisation by both the parties viz. buyers and sellers.

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The views expressed are of the author and do not necessarily represent the opinions or policies of the Indian Defence Review.

About the Author

Lt Gen (Dr) VK Saxena (Retd.)

former Director General Army Air Defence. Currently Distinguished Fellow VIF and Visiting Fellow CLAWS.

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