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.