Home >Industry >Manufacturing >Govt rewrites India’s public procurement rulebook
The public procurement order seeks to promote manufacturing and production of goods and services in India, to boost income and employment.  (Photo: Bloomberg)
The public procurement order seeks to promote manufacturing and production of goods and services in India, to boost income and employment. (Photo: Bloomberg)

Govt rewrites India’s public procurement rulebook

  • DPIIT has made it compulsory to give preference to local suppliers while awarding tenders
  • Firms defined as Class-I local suppliers will be the only ones eligible to bid for contracts

As part of 'Make in India' push, the National Democratic Alliance (NDA) government is rewriting the country’ public procurement rulebook, and in the process the government’s age old dictum of seeking the lowest price to award a tender, said two people aware of the development.

As part of Atma Nirbhar Bharat or self-reliant India strategy, the Department for Promotion of Industry and Internal Trade (DPIIT) in an order dated 4 June reviewed by Mint has made it compulsory to provide purchase preference to local suppliers.

In a wider decoupling exercise, as part of India’ economic response against China, these firms defined as Class-I local supplier, having local content of ‘equal to or more than 50%’, will be the only ones eligible to bid for contracts that has a sufficient domestic capacity. It will be the nodal ministry that will “notify goods and services with sufficient local capacity."

Even in international tenders, if the lowest bidder (L1) is a Class-I local supplier, the full contract quantity will be awarded to Ll. In case, the L1 bid is not placed by a Class-I local supplier, only half of the order quantity shall be placed with the L1 bidder. Then, if the lowest bidder among the Class-I local supplier matches the Ll price or falls within its range, the balance 50% of the contract will be awarded to the domestic firm.

This latest comprehensive ‘public procurement’ order is intended for giving preference to local suppliers and promoting manufacturing and production of goods and services in India, with a view to enhancing income and employment.

A commerce and industry ministry spokesperson confirmed the development and said, “All central ministries, departments and central public sector units are implementing the order."

Three categories of suppliers have been defined in the binding order. Apart from the Class-I local supplier mentioned above, the other two categories are of Class-II local supplier who supply local content of ‘more than 20% but less than 50%’, and non-local suppliers who supply local content of ‘less than 20%.’

"In procurement of all goods, services or works in respect of which the Nodal Ministry / Department has communicated that there is sufficient local capacity and local competition, only 'Class-I local supplier', as defined under the Order, shall be eligible to bid irrespective of purchase value," the order said.

"In case such lowest eligible 'Class-I local supplier' fails to match the Ll price or accepts less than the offered quantity, the next higher 'Class-I local supplier' within the margin of purchase preference shall be invited to match the LI price for remaining quantity and so on, and contract shall be awarded accordingly. In case some quantity is still left uncovered on Class-I local suppliers, then such balance quantity may also be ordered on the Ll bidder," the order added.

Along with leveraging its growing market to ready an economic retaliation against China, India also wants to play a larger role in global supply chains. India has upped the ante against China by restricting companies from countries with a shared border from participating in bids for government procurement without approval from competent authorities by amending the General Financial Rules 2017.

Also, where estimated value of purchase is less than 200 crore, no global tender will be issued. The DPIIT's June order is a modification and addition to the previous orders and covers all types of engineering, procurement and construction (EPC) contracts and services.

With mounting tensions along the India-China border, India’s ministries and departments have been turning the screws on Chinese firms. A case in point being the union power ministry’ strategy of erecting tariff barriers and other obstacles, including subsidising finance for promoting local power equipment makers and prior-permission requirements for imports from countries with which it has a conflict.

Also, as reported by Mint, India may further tighten its economic squeeze on China with New Delhi planning to discourage states from using Chinese equipment and technology in the strategic power sector by withholding funding to such projects from government-owned lenders if they use Chinese gear. India has also cancelled railway and road tenders secured by Chinese companies and has barred Chinese apps, including Bytedance’s TikTok and Alibaba’s UC Browser, citing national security concerns.

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