| Date: |
01-09-2015 |
| Subject: |
Government amends procurement rules for military deals |
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NEW DELHI: Meeting a long standing demand of the private sector, the defence ministry has amended its procurement rules to cushion companies participating in military contracts against variations in foreign exchange rates.
In what will come as a major relief especially to small and medium enterprises, the defence procurement policy has been modified to allow exchange rate variation (ERV) for all rupee contracts that have an import content.
In the past, Indian companies participating in military tenders under the `Buy Indian' and `Buy and Make Indian' route had to freeze rates at the time of submission of bids.
However, with foreign content of up to 50 per cent allowed in such products, an adverse exchange rate could potentially wipe out the profit margin and end in significant losses for the Indian entity.
Given the long period that defence contracts are stretched over, typically between seven and 15 years, the rupee value is difficult to predict at the time of submission of bids and signing of the contract.
Both the industry and experts have welcomed the move, which also takes away what was considered an unfair advantage by the public sectorthat had limited exchange rate variation protection.
"By providing the cushion to all domestic capital acquisitions and domestic bidders, the MoD has taken another logical step in enhancing the attractiveness of defence manufacturing," Ankur Gupta of Ernst and Young India says.
"This should have happened a long time ago and has been on the wish list of the domestic firms," Ankur Gupta of Ernst and Young India says.
In its report on amendments to the defence procurement procedure, a high level panel led by former home secretary Dhirender Singh too had recommended that ERV be granted for all contracts with immediate effect. The amendment is the latest in a series of changes.
Source : economictimes.indiatimes.com
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