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New rules for government tenders in India

In the wake of the COVID-19 crises, the government of India has introduced several measures to boost domestic manufacturing and protect micro, small and medium enterprises (MSMEs) from foreign competition. Further, Indian government has explicitly demonstrated that its future policies and measures on trade will focus on its new self-reliant India (Aatma Nirbhar) policy.

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In line with this, the government introduced amendments to the General Financial Rules 2017, whereby global tenders will be disallowed in government procurement up to INR 200 crore (equivalent of CHF 26 million). This threshold previously stood at INR 50 lakhs (CHF 36’000) The Department For Promotion Of Industry and Internal Trade (DPIIT) has amended its Public Procurement Order of 2017, giving priority to bidders of government contracts that use more ‘local content’ thus promoting the government's ‘Make in India’ initiative.

What is local content?

Local content is defined as the amount of value added in India, which shall be the total value of the item procured (excluding net domestic indirect taxes), minus the value of imported content in the item (including all customs duty), as a proportion of the total value in percent.

Suppliers of goods and services to the central government have been divided into three categories:

  • Suppliers with more than 50 percent local content are categorised as Class 1 suppliers, which is the highest rank in the order of preference
  • Suppliers with 20 to 50 percent local content are categorised as Class 2 suppliers
  • Suppliers with less than 20 percent local content have been designated as non-local suppliers

How can suppliers bid?

Per the new rules, only Class 1 suppliers will be allowed to bid for government contracts in sectors that have 'sufficient local capacity and local competition'. These norms will also be applicable for contracts related to engineering procurement and construction, used extensively in the infrastructure sector as well as system integration services such as operations and management, surveys and annual maintenance contracts, etc.

Further, the notification mentioned that in the exceptional cases where ministries or departments needed to float global tenders for amounts below the threshold, they have to seek approval from the cabinet secretariat, which functions directly under the Prime Minister.

What does this mean for Swiss and Liechtenstein SMEs?

As India is not part of the WTO’s Agreement on Government Procurement (GPA), it is well within its rights to impose these new measures. Its motive is to encourage foreign companies to manufacture and procure locally.  As a consequence, Swiss companies intending to market their solutions to India will have to evaluate local partnerships, collaborations with contract manufacturers and other business models. With India’s ambitious goal to become a USD 5 trillion economy by 2025, the country estimates to spend USD 1.4 trillion on infrastructure alone, which includes developing 100 new operational airports and 100 smart cities, among others, in the next five years. Swiss SME’s with their expertise in niche technologies, advanced manufacturing, precision technologies and clean energy, would make ideal partners for Indian companies participating in such projects.

Do you need additional information?

Please contact Beat Ineichen, Senior Consultant South Asia & Oceania at bineichen@s-ge.com or +41 44 365 54 35

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