Government's New Procurement Policy

Brief: Government of India’s new Procurement Policy is offering the entire Rs. 2.5 lakh crore business by way of annual capital expenditure to capable Indian companies; India’s procurements are estimated to rise in line with the GDP growth, i.e. +7%; Capacity, R&D capabilities a well as financial strength and resilience will however be key for participants to succeed in bidding/reverse biddings for GOI contracts.

Impact: Positive

As India aligns its procurement policy with the ‘Make in India’ plan, it opens the entire business generated out of its capital expenditure to capable domestic players, who can prove their strengths. Pertaining to contracts worth less than Rs. 50 lakh, where adequate domestic capabilities are ascertained, eligibility of participation will remain with just domestic players. In contracts worth over Rs. 50 lakh, which may involve more sophisticated capabilities, both foreign and domestic players can participate. However, even in such contracts, preference will be given to domestic players so much so that if they do not emerge as L1, they will be given an opportunity to match the L1’s bid if within the 20% margin.

Even though it may appear too farfetched to expect domestic players meeting every contractual obligation of the Government of India, the initiative provides Indian companies to leverage their position in the local market. While the success of domestic players will be determined by their abilities to deploy their existing resources – the challenge will be creating newer capacities and value chains. Perhaps, it may be argued that in the initial phase, foreign competition may outbid its Indian counterparts by way of shear capacities, access to capital as well as robust R&D capabilities atleast in the high technology segments. Indian players will therefore find their sweet spot in the primary, intermediate as well as basic/mid end technology space. The idea is that over time, Indian players will collaborate and build their indigenous capabilities to leverage this lucrative opportunity. As the definition of indigenous capabilities outlines a local supplier’s value add of 50%, there is clearly an opportunity for domestic players wishing to compete even with modest capabilities. SMERA believes that India’s public procurements (apart from items classified under Revenue Expenditure) are estimated to rise in line with its GDP growth, i.e. +7%.

Impacted Sectors:

  • Basic Goods (Metal Ores, Coal)
  • Intermediate/ Construction Goods (Cement, Semi-finished Steel, Alloy)
  • Capital Goods (Construction Equipment, Commercial Vehicles, Auto Components)
  • Renewable Energy Equipment (including energy suppliers)
  • Food Items & Processing
  • Defense Equipment

 

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Sankar Chakraborti
CEO