Make in India in public procurement: Companies bag Rs 50-bn govt contracts

One of the beneficiaries is Jindal Steel and Power, which had earlier been kept out of procurement for rails

The government intervention in promoting ‘Make in India’ in public procurement has resulted in Indian companies garnering over Rs 50 billion in projects. The changed procurement conditions have helped companies receive business from the Railways, GAIL India, and Oil and Natural Gas Corporation.

One of the beneficiaries is Jindal Steel and Power Ltd (JSPL). It had earlier been kept out of procurement for rails, but is likely to receive 20 per cent of the tendered volume under the new policy. The size of the tender is estimated to be around Rs 30 billion, of which JSPL may receive orders worth Rs 6 billion.

Last June, the department of industrial policy and promotion (DIPP) came up with an order after the Cabinet cleared a policy to promote domestic content in government and public sector undertakings’ purchases. “Not less than Rs 50 billion has come in less than one year,” said Aruna Sharma, secretary, ministry of steel.

Sharma said the reservation for Indian companies was compliant with the World Trade Organization’s norms. “It makes a lot of sense since it is cheaper to buy from Indian companies. Long rails are imported but if the domestic producers are able to make long rails then it is a preferred item.”

In placing rail orders, the Indian Railways had a condition of minimum supply by the company for winning the order. Last October, JSPL dispatched the last instalment of 150,000 tonnes of rails to Iranian railways. Besides, a team from the Research Design and Standard Organisation (RDSO) of the Indian Railways conducted tests for three weeks on JSPL-manufactured rails.

The Indian Railways required 1.4 million tonnes of rails in 2017-18. Government-owned Steel Authority of India Ltd (SAIL), which till now was the sole supplier of rails, committed to supplying 950,000 tonnes of rails in 2017-18. To meet the shortfall of supply from SAIL, the Railways had invited a global tender. It was halted following the introduction of new rules under which JSPL would be offered 20 per cent of the tendered volume. The company would have to match the lowest bid price. 

“We are never against imports. If Indian manufacturer’s rates and quality are internationally competitive, they will have an edge,” said Sharma.

A standing committee, with the DIPP secretary and secretary of steel as members, reviewed the implementation of local content requirement in public procurement. The June order was required to amend the general financial rules of procurement, which make purchases from the lowest bidder mandatory.

A GAIL tender had been stalled last year after the new policy was introduced. Chinese supplier North China, which had emerged the lowest bidder for GAIL’s Rs 12 billion-contract for the Bokaro-Dhamra section of the Jagdishpur-Haldia pipeline project, moved the Delhi High Court in July 2017 against the gas transporter’s decision to cancel the tender.

How preference in public procurement works

• Only local suppliers are eligible for procurement of Rs 5 mn or less

• For contracts higher than Rs 5 mn, the full contract will go to the local supplier if it is the lowest bidder

• The local supplier will get 50% of the contract if it is not the lowest bidder

• If the orders cannot be divided, the entire order will go to the local supplier that made the lowest bid after it matches the lowest bid price

• The lowest bidder among local suppliers will be asked to match the lowest bidder for the remaining quantity