The Indian Vendor Test before the Tender
A protected tier for Indian-owned design and a localisation tier where imported technology satisfies the percentage
On 10 February 2026 the Department of Defence published a draft Defence Acquisition Procedure 2026 that would raise the indigenous-content requirement for its most protected category to at least 60 per cent of the calculated base contract price. The figure has to be read against the money it would govern and against the industry it would bind. The Union Budget 2026–27 allocated ₹7.85 lakh crore to the Ministry of Defence as a budget estimate, of which ₹1.85 lakh crore was earmarked for capital acquisition and ₹1.39 lakh crore, approximately 75 per cent of that earmark, for procurement from domestic industries including private suppliers. Against those magnitudes, the cumulative foreign direct investment reported by companies operating in the defence sector stood at ₹6,670.59 crore as at March 2026. The structural constraint the draft would introduce is that the population of suppliers entitled to compete for any part of that expenditure is narrowed by nationality, ownership, control, design ownership and technology maturity at the moment the acquisition category is fixed, which occurs before any Request for Proposals is issued and therefore before any supplier can respond to a stated requirement. What the disclosed text does not settle is how far that narrowing will be pressed, since the same draft that sets the 60 per cent figure permits the accepting authority to lower it, to relax the requirement that half of it consist of materials, components or software manufactured in India, and to exempt aspects of maintenance from indigenous performance.
This report proceeds in the order in which the questions arise for a supplier. It establishes the legal status of the draft from the consultation notice and the ministerial record; sets the categorisation decision inside the planning and funding chain, using the draft and the two budget releases; examines the four acquisition categories, the definition of an Indian vendor, the Indigenous Design test and the Indigenous Content formula against the text of Chapter I; traces the origin of the vendor definition through the industry representations reported when the draft appeared; tests corporate eligibility against the Companies Act 2013, the Companies (Significant Beneficial Owners) Amendment Rules 2019, Press Note No. 4 (2020 Series) and the March 2026 Cabinet decision on land-border investment; measures the regulatory perimeter against the industrial licensing rules, the Security Manual for Licensed Defence Industries and Chapter 10 of the Foreign Trade Policy 2023; sets out six market-entry structures; and closes on execution, using the audit record. It does not evaluate any company, project any tender outcome, or attribute a future market position to any supplier. It does not cover the acquisition of aerospace systems, whose procedure is being prepared separately and has not been published. And it measures the obligations it describes against the published scale of the sector, not against the balance sheet of any named supplier: the cost of these obligations to a particular company is not established here.