Government notifies special exceptions in defence procurement policy

Defence Industry

New Delhi: In a move to encourage startups in defence procurement, the government has notified special exceptions which would encourage them to bid for contracts valued less than Rs 150 crore without the burden of providing financial credentials.

The Defence Ministry has stipulated that for these relatively small contracts, startups will be encouraged if they can prove technical expertise. It has also made a clear distinction between startups and new entrants in the field, ruling that mid to largesized groups venturing into defence manufacturing will still need to meet financial criteria that includes credit ratings, revenue and net worth.

The new set of guidelines has been issued for the ‘Make in India’ purchases being planned by the armed forces. Senior officials have emphasised in the past that this will be the main route of procurement for the armed forces in the future.

The government already has a scheme to encourage startups under its Defence Innovation Fund (DIF) with a maximum corpus of Rs 100 crore to identify, promote and fund research and innovation in the private sector.

While startups will be encouraged for the smaller contracts, larger procurement plans will require companies to qualify in several parameters that have been officially notified. This includes the requirement of a minimum of two years of experience in the broad area of the procurement case, like manufacturing, electronics or explosives.

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Any business entity wishing to bid for the contracts will be allowed to have foreign direct investment (FDI) up to 49 per cent and the chief executives must be Indian citizens. The guidelines also state that the board of directors should have a majority representation of Indian citizens.

Other rules defined stipulates that the minimum average annual turnover for the last three financial years should be at least 10 per cent of the cost of the project and the company should not be facing any insolvency proceedings.

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