UK access to India's procurement may hurt MSMEs, Make in India, warns GTRI

Economic think tank GTRI on Wednesday said allowing UK firms to participate in India's central government procurement tenders could crowd out MSMEs, which rely heavily on protected access to such contracts.

After the UAE, India has opened its central government procurement (GP) for British companies under the free trade agreement (FTA) announced on Tuesday, subject to certain conditions.

British firms can now bid for tenders, and those with just 20 per cent UK content will be treated as Class 2 Local Suppliers under India's Make in India policy. This effectively extends preferential treatment designed for Indian firms to foreign suppliers.

While UK companies gain broad access to India's procurement system, Indian firms remain largely excluded from the UK's closed and highly competitive GP market, the Global Trade Research Initiative (GTRI) said.

With little reciprocal benefit, this sets a dangerous precedent for future FTAs and weakens India's leverage to defend domestic interests, GTRI Founder Ajay Srivastava said.

"Allowing UK firms to compete on near-equal terms could crowd out Indian MSMEs, which depend heavily on protected access to government contracts," he said adding it also dilutes one of India's last remaining industrial policy tools - GP preferences - used to promote domestic manufacturing, innovation, and jobs.

India has so far opted out of the WTO's Government Procurement Agreement (GPA), preserving its right to favour domestic firms.

Under current policy, 25 per cent of government contracts are reserved for MSMEs, with sub-quotas for SC/ST- and women-owned enterprises. In defense procurement, 25 per cent of components must be sourced from Indian MSMEs.

In the FTA with the UK, Srivastava said a foreign country has received legally guaranteed access to India's central government procurement market.

"UK companies can now compete for about 40,000 tenders each year in sectors such as construction, healthcare, energy, and transportation. These firms will also gain free access to India's e-procurement portal, making participation easier and more informed," he said.

"What's more concerning is that UK firms with just 20 per cent UK content in their goods or services will now be classified as Class 2 Local Suppliers under India's Make in India procurement rules, a status previously reserved only for Indian firms," he added.

This grants them the same eligibility to compete in tenders that are preferentially designed to promote Indian producers.

He also said that there is an asymmetry and limited gains for Indian firms as evidence shows that less than 0.5 per cent of EU procurement goes to non-EU suppliers, and even in the UK, and only 20 billion or less is awarded to foreign bidders.

"Indian firms, already lacking scale and familiarity with UK procurement rules, are unlikely to gain meaningful access to these markets," Srivastava said adding allowing foreign firms to compete on equal footing within India weakens the policy tools India needs to build local capacity in vital areas like defense, renewables, health systems, and infrastructure.

He suggested excluding strategic sectors like defense, railways, and core infrastructure from foreign access; and to retain the right to set and revise local content criteria, especially to prioritize domestic suppliers for national interest objectives.