PMO moots preferential market access policy tweak

Says encouraging indigenous manufacturing at the cost of new and better products would lead to distortions in the market

The Prime Minister's Office (PMO) has suggested substantial changes to the preferential market access (PMA) policy guidelines for information technology and electronics products, including delinking issues of "security" and "manufacturing location".

It said encouraging indigenous manufacturing at the cost of new and better products would lead to distortions in the market. Instead, it suggested audits, certification and setting up standards to handle security issues and a dialogue with the industry on ways to address security concerns.

In a note for discussion with the Department of Telecommunications (DoT) and the Department of Electronics and Information Technology, the PMO suggested a moratorium on implementation of the policy till adequate assessment of manufacturing capability for products that qualify for domestic value addition was made. The note also suggested incentivising capability building for products not made in India.

The PMA policy stipulates the government would have to procure a certain percentage of its requirements from domestic manufacturers, based on a timetable. Similarly, domestic manufacturers have to value-add to production other wise they would be considered imported products. The policy was notified in October 2012. Detailed guidelines are yet to come. The thinking behind the policy was to give a fillip to domestic production, as well as assuage concerns in the government on security threats from imported products.

The PMO note said the domestic value-added criterion, key in manufacturing, was onerous and not based on any study. It argued that as component manufacturing in India was limited, the capability needed to be created first. Value addition calculations based on bills of materials were complex and could lead to "creative" accounting, with large compliance burden and bureaucratic oversight, it said.

The note has also said the PMA policy should not be extended to the private sector but be limited to government procurement. The policy states it will cover procurement by the government and also by its "licensees", which effectively meant it would be applicable on private telecommunication companies and banks.

The changes suggested by the PMO came after strong opposition from foreign companies. A few months earlier, the US-India Business Council and 37 business groups and companies from around the world had asked the Indian government to rescind the PMA policy and avoid "market-distorting policies". The PMO said the policy stipulates a high percentage of value addition over a short period, not allowing time for manufacturing efficiencies.

Changes suggested by PMO

• Delink security issues and manufacturing location. Audits, certification, setting up standards and a dialogue with the industry to address security concerns
• Freeze on policy rollout till assessment of manufacturing capability for products that qualify for domestic value addition
• Incentivise capability building for products not made in India
• Policy stipulates high percentage of value addition over a short period, not allowing time for manufacturing efficiencies