Capital acquisition in Indian Defence –A Guide on Financial Perspective

The guide aims to provide all the basic references in context of acquisitions in simple terms, along with practical information, with specific focus on financial aspects. The coverage include role of Defence Finance, involvement in the procurement cycle and as also on all the financial complexities of defence procurements including RFP responses have been covered. The intricacies involved at various stages of the procurement cycle – both pre and post RFP stages – have been dwelled upon at length. Numerous committees, starting from the Service Headquarters to Ministry of Defence influence decision making with finance being central in subsequent evaluation process. A detailed checklist has been designed to ensure correctness to RFP response to avoid some of the most common oversights.

The changes envisaged in the offset policy have also been highlighted. A supplement to the guide on Offset will be issued as soon as the policy is revised by MOD India.
The publication will be of interest to:

  • Defence Original Equipment Manufacturers.
  • Small and Medium Companies from the Defence and Aerospace sector.
  • Corporate India.
  • Banks and financial institutions.

The Contents of guide are provided below

 

Chapter #TitleValue
1  

An Overview of Defence Budget and Defence Finance

  • Defence Budget
  • Budgeting Trends and Forecasts
  • Government Financial System
  • Ministry of Finance
  • Ministry of Defence
  • Defence Acquisition Council
  • Defence Finance
  • Financial Adviser (Defence Services)
  • Integrated Financial Advice (IFA) System
  • Stages of Consultation with IFA in Procurement Process
  • Role of IFA at each Stage of Procurement
  • Defence Accounts
  • Budget Formulation & Implementation
2  

Capital Acquisition and Financial Planning Process

  • Defence Production Policy (DProdP)
  • Capital Acquisition - Planning Process
  • Acquisition Process Stages
  • Financial Planning Process
  • Budgetary Process at Services HQ
  • Financial Powers
  • Make Procedure Funding
3

RFP Response and Evaluation

  • Comprehending RFP
  • Salient Aspects - RFP
  • Focus on the requirements
  • Know What Your Contracting Authority is looking for
  • How to plan a response to a request for Proposal
  • Know the Ways to Prepare the RFP Documentation
  • Tips for RFP Documentation
  • Common Mistakes Committed
  • RFP Checklist
  • RFP Response Letter
  • Bidding System
  • Some 0ther Issues
  • Technical Evaluation Committee
  • Field Evaluation
  • Staff Evaluation
  • Technical Oversight Committee (TOC)
  • Contract Negotiations
  • Evaluation of Quotations and Price Reasonability by CNC
  • Net Present Value (NPV)
  • Life Cycle Concept
  • Transparency, Competition, Fairness and Elimination of Arbitrariness in the
  • Procurement Process
  • Award of Contract

Contract Administration and Risk Management

  • Important Financial Clauses
  • Exchange Rate Variation
  • Letter of Credit (LC)
  • Performance Bank guarantee (PBG)/Earnest Money Deposit (EMD
  • Indemnity Bond / Advance Payments
  • Guidelines on Confirmation of Bank Guarantees (BG) of Foreign Banks by Indian
  • Banks
  • Export licenses
  • Duty Drawback
  • Fall Clause
  • Repeat Order
  • Option Clause
  • Pre dispatch Inspection (PDI) / Joint Receipt Inspection (JRI)
  • No-Cost-No-Commitment (NCNC) trials
  • Penalties / Liquidated Damages
  • Offset Related Risks and its Assessment
  • CVC Guidelines

Indian Taxation Framework

  • Direct Taxes
  • Proposed New Direct Tax Code
  • Indirect Taxes
  • Goods and Services Tax legislation
  • Forms of business enterprise in India
  • Transfer Pricing Regulations
  • Tax Incentives
  • Domestic Companies Disadvantaged for Defense sector from an indirect tax Perspective

Defence Offset

  • Revised Offset Guidelines –Salient Features
  • Who can be Indian Offset Partner?
  • Guidelines for Discharge of Offset Obligations
  • Offset Banking
  • Guidelines for Offset Banking
  • Documents Required for Credit Banking
  • Multiplier for Micro, Small and Medium Enterprises (MSMEs)
  • Supporting Documents for Credit
  • Evaluation and Monitoring of Offsets By Defence Offset Management Wing (DOMW)
  • Submission of Offset Proposals
  • Processing of Offset Proposals
  • Guidelines for Value Assessment
  • Acquisition of products of the domestic defense industry
  • Technology Acquisition by DRDO
  • Multiplier for Technology Acquisition by DRDO
  • Approving Authority
  • Model Offset Contract
  • Six Monthly Report & Assignment of Offset Credits
  • Re-phasing of Offset Obligations
  • Can IOP or Offset Component be Changed?
  • Penalties
  • Debarment
  • Annual Reporting To The Defence Acquisition Council
  • Miscellaneous Provisions
#List of Figures
1.1   Defence Budget (Capital + Revenue)
1.2  Average % Share of Capital and Revenue Expenditure (2007-2012)
1.3  Defence Equipment state in %
1.4  Budget Share Service wise
1.5  Ten Year Outlook of Capital Expenditure (Service-wise)
1.6  Anticipated Defence Expenditure 2007-2016
1.7  Capital Budget –Spending
1.8  Government Financial System
1.9  Organizational Outline – Finance
1.10 Organizational Structure – MoD
1.11 Defence Acquisition Council (DAC)
1.12 FA (DS) Organisation
1.13 Principal IFA
1.14 Stages of Consultation with IFA
1.15 CGDA Organisational Structure
1.16 Organisation of CGDA HQ
1.17 CGDA Organisation – Controllers
2.1   Defence Production Policy – Goals
2.2  LTIPP Formulation
2.3  Defence Plan Periods
2.4   RFP Stages
2.5    Number of Committees - RFI to Contract Placement
2.6    Stages of Procurement and Agencies involved
2.7    Components of Financial Planning for Modernisation Schemes 
2.8  Budgetary Allocation & Monitoring Process
3.1   Life Cycle Cost Tree
6.1   Evolution of Indian Offset Policy
6.2  Offset Trend
6.3  Sector Spread
6.4  Industry Spread
6.5  Indian Offset Contracts
6.6  Public & Private Sector Share
6.7  Offset Contracts in Pipeline
6.8  Indian Offset Roadmap
6.9  Capital Acquisition and Offset Requirement 
6.10 Offset Proposals and there Evaluation Process 
#List of tables
1.1   Defence Budget (2007-2017) $ Billions
1.2  Capital Expenditure Share in $ Billions
1.3 Utilisation of Allotted Budget 
1.4 Budget Formulation & Implementation 
2.1 Annual Acquisition Plans: 11th Defence Plan
2.2 Annual Acquisition Plan (AAP)
2.3 Financial Powers
3.1 Salient Aspects – RFP
3.2 Calculating NPV
3.3  3.3 Grading lowest bidder on basic cost
3.4  3.4 Grading L-1 including basic cost plus maintenance on NPV basic
3.5  3.5 Summary of Cost Calculation
3.6  3.6 LCC Analysis
5.1   5.1 Structure of Major Indian Taxes
 5.2  5.2 Forms of business enterprise in India
 5.3  5.3 Procurement Benefits 
#Appendices
Appx I A
  • Key Players Contact Details
  • Ministry of Defence
  • Defence Acquisition Council
  • Defence Finance
Appx I B  Budget Terms
Appx III A  Checklist For Request For Proposal (RFP) 
 Appx III B  Standard CNC Composition 
 Appx III C  Modalities for Calculation of LCC 
Appx IV A  Central Vigilance Commission (CVC) Guidelines
Appx VI A  List of products and services eligible for discharge of Offset Obligations
Appx VI B  List of Industrial Licenses Issued
Appx VI C  Format for Submitting commercial offset offer/  Format for Submitting Proposal for Banking of offset
Appx VI D  Guidelines & Format for Technology acquisition
Appx VI E  Technical Offset Offer
Appx VI F  Offset Contract

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