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Buy Indian Policy : Daily Editorial


Context

There is news floating around that, the government is mulling to propose “Buy Indian” Policy that is similar to Trump’s Buy American policy to promote its flagship Make in India programme through a national government procurement policy.

What is the policy about?

  • The policy being considered involves purchases of Rs 2 trillion a year but it doesn’t include defence equipment.
  • The central government will provide special preference to companies producing in India; this could be in the form of a relaxation in turnover and experience conditions as well as price preference in products and services it is buying for its own use.
  • The purchases could range from mobile phones and computers to stationery and medicines, and even steel or aluminium for government and railway projects.
  • The scheme will incentivise companies to manufacture in India, given the scale of government purchases.

How will this be done?

  • The new e-market platform GEM (Government e-Market) which is used to procure goods and services for the government in a transparent manner will be used to roll out the new policy.
  • The commerce ministry will give shape to the policy, after which the expenditure department in the finance ministry will notify it.

Does this violate WTO Norms?

  • Under WTO rules, if the government is buying for itself and not for commercial purpose, then it may provide preference to domestic products.
  • In the Jawaharlal Nehru National Solar Mission case which India lost to the US at the WTO, the country was planning to impose mandatory local content requirements on solar power developers who would sell power on a commercial basis.
  • Therefore this move is totally compliant with WTO rules.
  • Even the US follows a similar policy under the Buy American Act, 1933, under which it prefers US-made products for government purchases.

How will this help?

  • In consumer durables, production is largely happening in Thailand and they get imported here at zero duty. With this move, they will be forced to manufacture them here in order to supply to the government.
  • It will incentivise companies to manufacture in India, given the scale of government purchases.
  • According to industry experts, this could help create over 10 million jobs.

Why is Defence excluded?

The defence manufacturing in India is in the nascent stage and is dependent on foreign technology and there is a reluctance for tech-transfer to Indian companies; buying Indian will hamper operational capabilities of the armed forces.

So there is a separate Defence Procurement Policy(DPP) made to provide a greater thrust to the ‘Make in India’ initiative in defence production.

  • DPP-2016 has introduced a new procurement category, Buy (Indian – Indigenously Designed, Developed and Manufactured), or ‘Buy (Indian – IDDM)’.
  • In terms of prioritisation, the new category, which would also be used for procurement of all locally designed and developed items under the revamped ‘Make’ procedures, is placed above the existing ‘Buy (Indian)’ category which, in turn, is placed above the other categories, namely the ‘Buy and Make (Indian)’, ‘Buy and Make’ and ‘Buy (Global)’, in that order.
  • Under the new category, indigenously designed equipment with 40 per cent indigenous content (IC), or equipment not necessarily designed in-house but having a 60 per cent IC, is intended for procurement from the local industry.
  • The intent is clearly to promote in-house design capacity and higher localisation, two critical aspects, which, if implemented in the right spirit, could deepen the role of domestic industry, especially the private sector, in defence production.
  • It is, however, to be noted that the responsibility to prove an indigenous design rests with the industry, while the final say would be that of the government.
Government e-Market (GeM)

What is GeM?

It is a one stop Government e-Marketplace (GeM) to facilitate online procurement of common-use Goods & Services required by various Government Departments / Organisations / PSUs.

GeM will enhance transparency, efficiency and speed in public procurement. It will also provide the tools of e-bidding and reverse e-auction as well as demand aggregation to facilitate the government users to achieve the best value for the money.

Directorate General of Supplies & Disposal (DGS&D) is tasked primarily with fixing Rate Contracts (RC) for common user items required by various Government organisations through an online e-procurement portal. It is being managed by two organised Group ‘A’ Services namely Indian Supply Service and Indian Inspection Service.

GeM Advantages For Buyers

  • Rich listing of products for individual categories of Goods/Services
  • Search, Compare, Select and Buy facility
  • Buying Goods and Services online, as and when required.
  • Transparent and ease of buying
  • Continuous vendor rating system
  • User-friendly dashboard for Buying and monitoring supplies and payments
  • Easy Return policy

GeM Advantages For Sellers

  • Direct access to all Government departments.
  • One stop shop for marketing with minimal efforts.
  • One stop shop for bids / reverse auction on products/services
  • New Product Suggestion facility available to Sellers
  • Dynamic pricing: Price can be changed based on market conditions
  • Seller friendly dashboard for selling and monitoring of supplies and payments
  • Consistent and uniform purchase procedures
Practice Questions

1. The government is one of the biggest procurers of India, how Make in India can be aligned to boost local industry? Give suggestions

2. Discuss the merits and challenges of localising defence procurement underlining the new Defence Procurement policy?


 

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  • Murinder Nodi

    Lol, I read it as Buy INDIAN POLITY , when I first read it.

  • Da Vinci

    Hey…See the argument of India in this cases was that justification of DRC as being under govt. procurement – Hence, not under WTO norms.
    However, the Tribunal ruled that Govt. is purchasing solar electricity not solar modules for which DRC is applicable. Hence, it is not govt. procurement. In other words, if Indian govt. would have been purchasing solar modules then this was easily under govt. procurement.

    Since it is not govt. procurement, it is under WTO norms. Now, to defend itself under WTO norms, govt. was supposed to use article XX (b) or (g) on health or environment grounds. However, It did not use it. (No idea why govt. is not well versed with International trade law…:P)
    Hope it would clear your doubt…:)

  • H K A

    Thanks. Sorry if I was not clear about what I wrote.

    US had raised issue of violation of National Treatment obligations by India by mandating domestic requirement in solar modules. India submitted that it was for government procurement and non-commercial use. And WTO ruled against us. The government procurement mentioned here in the article looks exactly like that.

    Article XX that I have referred to above is a set of exceptions to WTO rules (multilateral treaty – GATT). It provides the grounds on which exceptions to GATT can be allowed. This was the provision under which India was “supposed to” appeal and did not and lost the case. This provision is valid only under environmental and health grounds. Hence, I think, government procurement with domestic only requirement should be valid only for environmental and health grounds.

    What do you think? Please also see this article.

    http://www.thehindu.com/opinion/columns/why-the-wto-is-right-in-the-solar-panel-dispute/article8305405.ece

  • Da Vinci

    Hey with respect to govt. procurement there has not been any complete agreement under WTO. for ex. Goods in service, Recent Trade facilitation agreement – have been adopted by WTO as a whole. These are called multilateral agreements. These are binding on all WTO countries.
    However, there are 4 ‘plurilateral agreement’
    trade in civil aircraft
    government procurement
    dairy products
    bovine meat.
    These are binding only on those countries which signs these agreement. India has not signed govt. procurement agreement. Hence, it is not bound by WTO rules with regard to govt. procurement.

  • H K A
  • H K A

    I clearly remember having read that the justifiable clause on Domestic Content Requirement for procurement by governments is allowed only on environmental and health grounds – “Article XX(b) or (g) of the General Agreement on Tariffs and Trade”.

    Please clarify.