Ministries baulk at giving large procurement contracts to foreign companies

Prefer Indian firms in sectors where domestic capability exists: NITI Aayog

A number of central ministries are refraining from awarding large procurement contracts to foreign companies in sectors where capabilities exist at home, a senior government official told Business Standard.  This is aimed at giving impetus to domestic manufacturing.

In line with the Centre’s previous directive barring global tenders from government procurement up to Rs 200 crore, the NITI Aayog has informally told all ministries to extend this to large contracts as well. 

“Where indigenous capability exists, it is better not to go for global tenders,” the government’s think tank is learnt to have told them.

Some ministries have started implementing the advice, while others have not done so yet because they are faced with inadequate domestic capacities, the official said.

The ministries have been “informally” communicated to follow these guidelines as making them mandatory would violate the World Trade Organization guidelines, and even General Financial Rules, the official said. 

“This is being done to protect and give more impetus to domestic industries, and provide them more opportunities. Where we do not have domestic capacity, there is no problem in awarding government contracts to foreign players,” he said.

The NITI Aayog has held discussions with all ministries on this. The planning body has also written to a few government departments involved in sectors where “critical manufacturing” is taking place in the country, asking them to prefer Indian firms over their global peers, he added.

“If this needs to be followed entirely, a policy statement will have to be released and a change in General Financial Rules (GFR) will be needed,” he said.

In 2020, the Department of Expenditure, under the Ministry of Finance, amended Rule 161 (iv) of GFR so that no global tender enquiry is invited for tenders up to Rs 200 crore, unless prior approval is obtained from the Cabinet Secretariat. This was aimed at providing relief to local micro, small and medium enterprises.

For now, the government does not intend to modify GFR, and if procurement can be done from Indian manufacturers without compromising on quality and cost, then departments should limit themselves to awarding contracts to local manufacturers and give a push to atmanirbharta, the official said. “This could also be done on a quantitative basis,” he added.

As the Covid-19 pandemic and the subsequent lockdown brought business activity to a halt, India has opted for several measures to protect domestic industry by hiking import duty on a host of items, and screening investments coming in from bordering nations to avoid hostile takeovers of local companies. The present guidelines only aim to limit the participation of foreign agencies in government contracts, the official said.