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Internal SecurityFree till Sep 9

Defence Procurement: DPP, Offsets, and Make in India

July 19, 2026

Defence Procurement: DPP, Offsets, and Make in India

Introduction

India's defence procurement framework has evolved significantly from a purely import-dependent model to one that emphasizes indigenisation, strategic partnerships, and export competitiveness. The Defence Procurement Procedure (DPP), offset policies, and the Make in India initiative constitute the three pillars of this transformation. With a defence budget exceeding ₹6.2 lakh crore (2024-25) and the world's second-largest standing army, India's procurement decisions have strategic, industrial, and fiscal implications.

Defence Procurement Procedure (DPP)

Evolution of DPP

VersionYearKey Features
DPP-20022002First comprehensive procurement manual; categorised by Buy (Indian/G2G/Global)
DPP-20062006Offset policy introduced (30% for contracts > ₹300 crore); Indigenous Design category added
DPP-20082008Buy and Make (Indian) category formalised; emphasis on technology transfer
DPP-20112011Indigenous content requirement increased; fast-track procurement introduced for urgent needs
DPP-20132013Offset banking allowed; maintenance category added; lifecycle cost evaluation introduced

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DPP-2016
2016
Major reforms — preference for Buy (Indian-IDDM); Strategic Partnership model announced
DPP-20202020Negative lists for imports (509 items); separate innovation and R&D procurement; lease option added

Procurement Categories (DPP-2020)

  1. Buy (Indian-IDDM) — Indigenously Designed, Developed and Manufactured; highest preference
  2. Buy (Indian) — Manufactured in India by Indian vendor with ≥50% indigenous content
  3. Buy & Make (Indian) — Initial foreign purchase with phased indigenisation plan
  4. Buy (Global – Manufacture in India) — Foreign OEM with Indian production partner
  5. Buy (Global) — Direct import (lowest preference; subject to negative list restrictions)

Key Reforms in DPP-2020

  • Negative Import Lists: 509 items (in 5 lists) banned from import; phased timeline for indigenisation
  • Leasing: Long-term leasing allowed for non-combat assets (simulators, transport aircraft)
  • Innovation: Dedicated procurement for iDEX winners and start-ups (up to ₹1 crore per prototype)
  • Financial timelines: 75% payment within contract period (was 25-40%); reduced interest liability for vendors
  • Lifecycle cost: Total ownership cost evaluation (including 15-year spares and maintenance)

Offset Policy

What Are Offsets?

Defence offsets are obligations imposed on foreign vendors to reinvest a portion of the contract value into the Indian defence/ aerospace sector. The rationale: compensate for import dependence while building domestic capability.

Evolution of Offset Policy

ReformYearChange
Offset policy introduced200630% offset for contracts > ₹300 crore
Offset banking2013Vendors could earn offset credits before contract
Multiplier system2013Higher multipliers for critical technology transfer
Sectors expanded2016Civil aerospace, internal security added
Offset policy review2020DPP removed mandatory offsets for Buy (Indian) and Buy & Make categories
Offset relaxation2024Offsets reduced from 30% to 20% for government-to-government deals

Criticisms of Offset Policy

  • Poor execution: Only ~40% of offset obligations actually fulfilled
  • Quality gap: Transferred technology often last-generation or non-core
  • Cost inflation: Vendors inflate base contract price to offset costs
  • Verification issues: Indian MoD lacks capacity to verify offset implementation
  • Lack of accountability: No penalty enforcement for non-fulfilment of offset obligations

Make in India in Defence

Strategic Partnership (SP) Model

  • Announced: DPP-2016; framework finalised 2017
  • Sectors: Submarines, fighter aircraft, helicopters, armoured vehicles
  • Process: Indian private companies selected as SPs via competitive process; partnered with foreign OEMs
  • Selected SPs: Tata Group (aerospace), Mahindra (armoured vehicles), L&T (submarines), Bharat Forge & Tata (artillery)

Positive Indigenisation List

ListItemsDeadline
1st List (Aug 2020)101 items2020-2024
2nd List (May 2021)108 items2021-2025
3rd List (Apr 2022)124 items2022-2026
4th List (May 2023)95 items2023-2026
5th List (Jun 2024)81 items2024-2028
Total509 items—

iDEX (Innovations for Defence Excellence)

  • Launch: 2018 by MoD
  • Purpose: Engage MSMEs and start-ups in defence innovation
  • Structure: Defence Innovation Organisation (DIO) as nodal agency
  • Achievements: 350+ start-ups, 250+ contracts, 50+ prototypes developed
  • Funding: Up to ₹1.5 crore per startup through DEF-TAC (Defence Technology Acceleration)
  • Scheme: Dare to Dream competition reaches Tier-2/3 cities

Challenges in Defence Procurement

ChallengeImpact
Legacy import cultureServices prefer proven foreign equipment over indigenous alternatives
DRDO dominanceLimited private sector R&D; DRDO delays cascade to production
Quality concernsIndigenised spares often lack standards certification; rejection rates high
Financial managementCapital budget underutilisation (~85-90% utilisation); revenue budget overshoot
Single-vendor situationsMany categories (warships, artillery) have only one Indian vendor
DelaysAverage procurement cycle: 5-7 years from RFP to contract
Defence offset complexityVerification, banking, multiplier disputes cause litigation

Way Forward

  1. Category reform: Merge DPP categories to 3-4 clear buckets; reduce ambiguity
  2. Private sector R&D: Increase DRDO-industry collaboration; spin off DRDO labs
  3. Quality assurance: Establish third-party certification authority for defence products
  4. Record management: Digital lifecycle tracking of equipment (Nirbhay platform)
  5. Lifecycle costing: Shift from lowest bid to total ownership cost evaluation
  6. Test and evaluation: Independent defence test ranges (like US DT&E)
  7. Offset rationalisation: Replace mandatory offsets with targeted FDI + technology transfer outcomes

Conclusion

India's defence procurement framework has moved in the right direction — from import dependency to indigenisation. DPP-2020's negative import lists, the SP model, and iDEX have created momentum. However, implementation gaps, service bias towards imports, and industrial capacity constraints remain hurdles. The goal of a self-reliant defence industry requires not just policy reform but a cultural shift in how the armed forces, industry, and bureaucracy approach procurement.

Practice Questions

  1. Examine the evolution of Defence Procurement Procedures in India. How has DPP-2020 addressed the challenges of earlier versions?
  2. Critically evaluate the role of offset policy in India's defence indigenisation efforts. Suggest reforms.
  3. "Make in India in defence has made progress but faces implementation challenges." Discuss.