As part of the ‘Make in India’ drive, the National Democratic Alliance (NDA) government is amending the country’s public procurement rulebook, and in the process the government’s age-old dictum of seeking the lowest price to award a tender, sources said.
According to the 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 procure possession preference to local suppliers.
In a vast decoupling exercise, as part of India’s monetary response against China, these corporations defined as Class-I local suppliers, having local content of ‘equal to or more than 50%’, will be the only ones eligible to bid for contracts that have sufficient domestic capacity.
It will be the nodal ministry that will “notify goods and services with adequate 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 L1. 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 conforms to the Ll price or falls within its range, the rest 50% of the contract will be conferred to the domestic firm. This latest comprehensive ‘public procurement’ order is intended for giving preference to local suppliers and promoting the 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 supplies local content of ‘more than 20% but less than 50%’, and non-local suppliers who supply local content of ‘less than 20%.’
“In the 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 the 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 the remaining quantity and so on, and the 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 L1 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 the estimated value of the 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’s strategy of erecting tariff barriers and other obstacles, including subsidizing finance for promoting local power equipment makers and prior-permission requirements for imports from countries with which it has a conflict.
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 discontinued railway and road tenders safeguarded by Chinese companies and have barred Chinese apps, including Bytedance’s TikTok and Alibaba’s UC Browser, illustrating national security concerns.
By JP Sahu
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