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Publish Date : 02-Sep-2015

Fulfilling a long standing demand of the private sector, the ministry of defense has revised its procurement rules to cushion companies taking part in military contracts against changes in foreign exchange rates. The defense procurement policy has been altered to allow exchange rate variation (ERV) for all rupee contracts having an import content, in what will come as a major relief especially to small and medium businesses.

In the past, Indian companies taking part in military contracts under the 'Buy Indian' and 'Buy and Make Indian' route had to freeze rates at the time of filing of bids. But, with foreign content of up to 50 per cent allowed in such products, an adverse exchange rate may wipe out the profit margin and end in significant losses for the Indian entity.

Given the long period that defense contracts are stretched over, typically from 7 to 15 years, the rupee value is hard to predict at the time of filing of bids and signing of the deal.

Welcoming the move of the MoD, Ankur Gupta of Ernst and Young India said, "This should have happened a long time ago and has been on the wish list of the domestic firms. 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."

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