The Indian government is cancelling foreign tenders to promote made in India products

• The government has withdrawn and revised procurement tenders that favour foreign companies.
  
• The move follows a statement by Narendra Modi, this past March wherein he “expressed concern at the restrictive and discriminatory clauses” against domestic firms in contracts.
  
• While the order favouring domestic suppliers might have negative implications for quality control, it might just be the shot in the arm the Make in India programme needs.

Who says you can’t kill two birds with one stone?

Given its strained finances, the Indian government obviously wants to source its services and assets from the supplier that quotes the lowest price - be it the construction of a rail network or a highway, or a fleet of armoured vehicles. But it can’t let domestic manufacturers be crowded out by foreign companies. Hence, it has had to modify its public procurement ordering system to align with the Make in India programme.

As a result of this, around ₹130 billion ($1.9 billion) worth of tenders have been cancelled or withdrawn by the Department of Industrial Policy and Promotion, according to the Press Trust of India. They have subsequently been revised to favour manufacturers under the Make in India initiative. For example, a ₹50 billion contract for the procurement of train coaches was withdrawn because the terms of the contract reportedly favoured foreign companies. It was reissued so as to invite more competitive bids from Indian firms.

The move follows a statement by India’s Prime Minister, Narendra Modi, this past March wherein he “expressed concern at the restrictive and discriminatory clauses being imposed against domestic manufacturers and suppliers in tender documents for public procurement”. The statement mainly concerned contracts that were larger than ₹50 million.

In June last year, the government issued an order to all central and state departments that all procurement tenders should be geared towards domestic suppliers by allowing them a 20% “purchase preference”. This means that they would be chosen in the event that their costs were within a 20% premium or less in relation to the nearest bid from a foreign supplier. A second clause stated that at least 50% of inputs for a project should be domestically sourced.

The government has failed to meet its targets under the Make in India programme, but now that could change. Public procurement is a big business. In the last fiscal year, around ₹14.2 trillion worth of contracts were handed out by the Indian government. While the order favouring domestic suppliers might have negative implications for quality control, it might just be the shot in the arm the Make in India programme needs.