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New defence production policy to favour Indian firms

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NEW DELHI (PTI): India today said it would come out with a new Defence Production Policy in the next two months under which domestic industries would certainly get orders for products developed by them after indigenous research.

The move comes in the backdrop of reluctance on part of Indian companies to get into the sector due to high R&D costs and uncertainty over orders from the armed forces.

Defence Production Secretary R K Singh told reporters here all Indian industries bidding for the same tender for products will be given the orders in a sharing formula.

"If there are two Indian companies bidding for the same tender then the lowest bidder would get 65 per cent of the orders and the other company would get 35 per cent of the order's share.

"To increase indigenised capability, which is about 30 per cent to 35 per cent today, we are adopting a new Defence Production Policy," Singh said.

But, the focus remains that the Indian armed forces should get the best systems available," Singh said to queries on plans to improve self-reliance on defence production and if there would be changes in awarding contracts to the lowest bidder.

Singh said the Defence Ministry had already held consultations with Indian industry on the policies and one of the plan was to reintroduce the 'make' procedure for procurements from the Indian market.

"We have to combine transparency and equity in our defence production policy. Equity determines we give opportunity to all of the domestic manufacturers and transparency demands that it be done openly," he added.
The Defence Production Secretary said the policy would witness changes in orientation to the extent that products that were available in India would be sourced within the country.

"But I would not say that our imports will come to zero.Some critical equipments we will still buy from outside India," he added.

To another query, he said India was not examining any proposal to increase the Foreign Direct Investment limit from the existing 26 per cent and noted that FDI had no relation with complying with offsets obligations by foreign vendors under the Defence Procurement Policy, which makes it mandatory for them to plough back 30 per cent to 50 per cent of deals worth over Rs 300 crore back into India.

Singh said India at present sourced products from within the country at about 30 per cent to 35 per cent of the defence needs.

Indian defence industry had recorded Rs 400 crore exports last fiscal and the amount recorded this fiscal stood at Rs 300 crore till December 2009.

Among the products that India exported were rifles, machine guns, sub-machine guns, mortars, explosives, rockets, ammunition, components for fighter aircraft, ground support equipment for aircraft and such.

Most of these exports take place in Asia and Africa and Singh said it made sense for the countries in these continents to look at India for defence supplies.

"However, the exports are incidental to our capacity to produce more that what is needed by our armed forces. If production is more than the demand, then exports will take place," he added.

Asked about the government's policy on middlemen in defence deals, Singh said "The Ministry's policy is clear -- no middlemen absolutely.

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