The first version of the Post-Kargil defence procurement procedure (DPP) in 2002 specified three types of categorisation of procurement proposals, i.e. ‘Buy’, ‘Buy and Make’ and ‘Make’. Whereas ‘Buy’ means outright purchase of the complete requirement; ‘Buy and Make’ implies purchase of part requirement from a foreign vendor and production of the balance quantity under licence in India; and ‘Make’ denotes indigenous development of the equipment to meet the complete requirement. Acquisition proposals that emanate from the Service Headquarters are debated at length by the Categorisation Committee to determine the route to be adopted. Depending on urgency of requirement, total quantity projected, indicative cost and nature of technology involved, every proposal is suitably categorised.

Reforms & New Categories

With a view to introduce reforms and streamline the process, DPP is subjected to periodic reviews. In 2006, consequent to the acceptance of the report of the Kelkar Committee, indigenous developmental route (‘Make’) was split into three separate categories:-

(a) ‘Make (DRDO)’ for the development of all strategic, complex and security sensitive systems — development of these systems would be under Defence R&D Board as per the Defence Research and Development Organisation (DRDO) procedure and would utilise DRDO funds for execution.

(b) ‘Make (High-tech)’ for the development of high tech complex systems — to be undertaken by Indian industry and would also include all upgrades.

(c) ‘Make (Low-tech)’ projects — to be treated as ‘Buy Indian’ with minimum 50 per cent indigenous content.
Acquisitions covered under the ‘Buy’ decision were also split into ‘Buy (Indian)’ and ‘Buy (Global)’. Whereas the former implies procurement from Indian vendors only, ‘Buy (Global)’ allows both foreign and Indian vendors to participate. Under ‘Buy (Indian)’ category, system must have minimum 30 per cent indigenous content.

A set of amendments was issued by the government recently in November 2009, creating yet another category ‘Buy & Make (Indian)’. It implies purchase from an Indian vendor followed by licensed production/indigenous manufacture in the country. Indian vendor can also be an Indian company forming joint venture or establishing production arrangement with foreign original equipment manufacturer (OEM). In such cases, Request for Proposals (RFP) would be issued to only those Indian vendors, who are assessed to have requisite technical and financial capabilities to undertake such projects. Additionally, ‘Buy & Make (Indian)’ cases must have minimum 50 per cent indigenous content on cost basis.

Starting with three categories in 2002, we have seven categories at present. Reforms have got reduced to the creation of additional categories, albeit with major gaps and incongruities. Current categories are as shown in the illustration below.

Illustration: Categorisation of Acquisition Proposals

‘Buy (Indian)’ and ‘Make (Low-tech)’

Both categories mean the same, except that in ‘Buy (Indian)’ cases indigenous content has to be 30 per cent whereas in ‘Make (Low-tech)’ cases, it has been fixed at 50 per cent. Need to have two separate categories is incomprehensible. Moreover, laying down of lower percentage of local content for general/common items under ‘Buy (Indian)’ is highly surprising. It implies that Indian vendors can function as traders by importing all sub-systems and undertaking their assembly in India to claim value addition of 30 per cent to comply with the policy provision. This is the route that most public sector entities have been following for decades and earning hefty profits.