India’s Defense Minister, AK Antony just released the latest version of the policy for procurement of capital goods by India’s Ministry of Defence, known as DPP 2011.
When you read beyond the necessary rhetoric of supporting domestic production and Indian companies, the key additions are some movement in the area of offsets, and marginal simplification of financial bidding processes.
So far India’s defence procurement offsets were driven exclusively to help India’s defense production, technology and export capability. At the urging of western suppliers, the scope of Offset Policy Guidelines is now expanded to include “civil aerospace”, “internal security” and relevant “training” as eligible products and services for the discharge of offset obligations. The list of eligible offsets now covers civil aerospace, including aircraft, both fixed wing and rotary, air frames, air engines, aircraft components, avionics, aircraft design and engineering services, aircraft material, technical publications, flying training institutions and technical training institutions.
Internal security products on the DPP 2011 list include arms and ammunition, protective equipment, vehicles, riot control equipment, surveillance devices and training aids such as simulators. Boeing and EADS would expect to benefit from the new offset policy, given that they already have products in the civilian aerospace and internal security markets.
The new offset policy will not apply to India’s Medium Multi-Role Combat Aircraft program, for which vendors will have to come up with defense offsets worth 50% of the approximately $11 billion order for 126 fighters. Field Trials for this program have already been completed and an award decision may be announced prior to 2012.
Suppliers from India and overseas have complained about the bank guarantees required as part of the proposals under DPP 2008 and DPP 2009.
In response, Bank Guarantees under the Integrity Pact have been linked to the validity of the Commerical Offer submitted by vendors and are no longer open ended under DPP 2011. In addition, the requirement of furnishing two separate financial bonds for performance of contract and warranty of equipment has now been replaced by a single Performance-cum-Warranty Bond.
The stringent clause for blacklisting vendors for delay in delivery of equipment in fast track procurement cases has been removed but the liquidated damages have been enhanced to ensure greater accountability by vendors.
As usual the new Defense Procurement Policy is available for download from the ministry website. (Remember that the Defence Procurement Manual or DPM covers non-capital purchases, what we are talking about here is the DPP which describes capital purchases by the Army, Navy Air Force and Coast Guard; also note that purchases by DRDO and by defense public sector undertakings such as HAL, BEL etc are not included in this document).
Last updated: December 26th, 2025
