Revised Public Procurement Order 2017: Key Changes & Impact

The Indian Government has significantly revised the Public Procurement (Preference to Make in India) Order 2017, as per the latest revised order from Ministry of commerce and Industry issued by DPIIT issued on July 19, 2024 (Refer Notification). This extensive update aims to intensify the Make in India initiative, promoting local manufacturing and bolstering the economy. The current revision addresses all aspects, including local content, Make in India, violations, equipment, and accessories.

The Make in India order, prior to the notification of July 19, 2024, was often criticized for its ambiguity and lack of clarity, especially concerning various specific cases. However, with the recent revisions, there is now a crystal-clear framework that addresses every nuance and detail. These changes shed light on critical aspects such as the proper labeling of imported products, the financial implications of license fee payments by Indian entities, and the sourcing dynamics of locally sold but imported goods. This update ensures that all stakeholders are well-informed and can confidently navigate the revised regulations to maximize the benefits of the Make in India initiative.

Decoding the New Policy: Essential Concepts and Key Terms

The revised Public Procurement (Preference to Make in India) Order 2017 introduces several important concepts and terms. Understanding these is crucial to comprehending the full scope and implications of the new policy. Here’s a detailed breakdown of the key concepts and terms

Special Treatment for PLI Scheme Items

The Production Linked Incentive (PLI) Scheme is a key initiative aimed at boosting domestic manufacturing and attracting significant investments in production capacities. Under the revised Public Procurement Order 2017, items covered by the PLI Scheme receive special treatment to encourage local production.

1. Class-II Status: Items under the Production Linked Incentive (PLI) Scheme are deemed Class-II local suppliers unless they meet Class-I criteria.
2. Incentive Requirement: Manufacturers must receive incentives from the concerned PLI Ministry.

Mandatory Sourcing

The revised order mandates that for items with sufficient local capacity and competition, as notified by the Nodal Ministry, sourcing must be exclusively from ‘Class-I local suppliers’ in System Integrator (SI), Engineering, Procurement, and Construction (EPC), Turnkey Contracts, and Service tenders. This requirement ensures that these items are procured from suppliers whose goods or services meet the minimum local content requirement of 50%, thereby promoting local manufacturing and production. Exceptions to this mandate can be granted only with the approval of the Secretary of the administrative Ministry/Department or the designated Competent Authority on a case-specific basis.

Purchase Preference Mechanism to Boost Local Manufacturing

Divisible Procurements

1. Identify Lowest Bid (L1): The lowest bid (L1) sets the benchmark.
2. Full Contract to Class-I L1: If L1 is Class-I, they get the full order.
3. 50% Allocation to Non-Class-I L1: If L1 is not Class-I, 50% of the order goes to L1.
4. Remaining 50% to Class-I Suppliers: Class-I suppliers who match L1 price get the rest.

Non-Divisible Procurements

1. Identify L1: The lowest bid (L1) sets the benchmark.
2. Contract to Class-I L1: If L1 is Class-I, they get the full order.
3. Invitation to Match L1: If L1 is not Class-I, the lowest Class-I supplier within the margin is invited to match the L1 price.

What are the Exemptions of the Revised Order?

Exemption Type	Details
Small Purchases	Purchases below INR 5 lakhs are exempt.
Spare Parts and Consumables	Exempt for closed systems, maintenance/service contracts with OEM.

How to Verify Local Content?

1. Self-Certification: Suppliers must self-certify local content.
2. Certification for Large Contracts: Contracts over INR 10 crores require certification from a statutory auditor.
3. Penalties: False declarations can lead to debarment for up to two years and penalties up to 10% of the contract value.

Practical Examples to Illustrate the New Mechanisms

Here are some practical examples that explain the concepts of divisible and non-divisible procurements based on the declared local content. These examples will help you understand how the new mechanisms are applied in various procurement scenarios.

Example 1: Divisible Procurement

1. L1 Bid: INR 100 from Non-Class-I Supplier.
2. Class-I Supplier’s Bid: INR 110 (within 20% margin).
3. Order Split: 50% to Non-Class-I at INR 100, 50% to Class-I at INR 100 (if they match).

Example 2: Non-Divisible Procurement

1. L1 Bid: INR 100 from Non-Class-I Supplier.
2. Class-I Supplier’s Bid: INR 110 (within 20% margin).
3. Contract Award: Offer to Class-I supplier to match INR 100. If matched, full contract to Class-I.

Ensuring Compliance: Violations and Penalties for Misdeclaration of Make in India Content

Public procurement on GeM (Government e Marketplace) comes with a seven-year compliance period, ensuring long-term adherence to the Make in India initiative. The disclaimer clearly states that any misdeclaration of Make in India content can lead to the nullification of a bid, underscoring the importance of accurate declarations. Here’s a breakdown of the violations and penalties associated with non-compliance.

Proposed Actions Against Sellers

Violation Type	Penalty
False Declaration	Debarment up to two years, penalties up to 10% of contract value.
Non-Compliance	Suppliers may lose preferential treatment and face penalties.

Proposed Actions Against Buyers

Violation Type	Action
Discriminatory Bid Conditions	Inquiry into the inclusion of discriminatory conditions against local suppliers.
Failure to Comply with Order	Administrative or other actions against responsible officials.

Equipment and Accessories

The revised order clarifies that repackaged, refurbished, or rebranded imported equipment and accessories do not count towards local content. This provision ensures that only genuine local value addition is recognized, preventing misuse of local content provisions.

Specific Requirements for Equipment and Accessories

For equipment and accessories, the order stipulates detailed guidelines to ensure transparency and adherence to local content requirements.

These include:

1. Exclusion of Imported Components:

Items sourced from local resellers that are imported are excluded from local content calculation.

2. Certification Requirements:

Suppliers must provide detailed certification, including break-up of costs for locally sourced and imported components.

Action for Non-Compliance

Inquiry and Responsibility

In cases where restrictive or discriminatory conditions against local suppliers are included in bid documents, an inquiry will be conducted by the administrative department overseeing the procurement. This inquiry aims to fix responsibility and take appropriate actions against the officials involved.

Administrative Actions

Appropriate administrative or other actions will be taken against officials found responsible for non-compliance. These actions are intended to ensure accountability and adherence to the revised order.

Role of Nodal Ministries in Promoting Make in India

Nodal Ministries play a crucial role in ensuring compliance with the revised order. Their responsibilities include:

1. Setting Higher Local Content Requirements: Nodal Ministries can prescribe higher minimum local content requirements for specific items.
2. Periodic Review: They must annually review and increase local content percentages, considering local capacity and competition.
3. Addressing Complaints: Nodal Ministries are responsible for addressing complaints related to local content compliance and ensuring fair practices.

To provide a clear understanding of the revised order, the following tables summarize the key aspects:

Local Content Requirements and Purchase Preference

Supplier Category	Minimum Local Content	Purchase Preference Margin
Class-I Local Supplier	≥ 50%	20%
Class-II Local Supplier	20% – 50%	No preference
Non-Local Supplier	< 20%	No preference

Exclusions in Local Content Calculation in the revised Public Procurement Order

Exclusion Category	Description
Imported Items from Local Resellers	Items sourced locally but imported are excluded
License Fees/Royalties	Payments made outside India for licenses/royalties
Repackaged Items	Imported goods repacked from bulk to smaller packs
Refurbished Items	Repair or reconditioning of imported products
Rebranded Items	Relabeling or renaming of imported products

Here are some illustrative examples to help you better understand the concept!

Example 1: Divisible Procurement

1. L1 Bid: INR 100 from Non-Class-I Supplier.
2. Class-I Supplier’s Bid: INR 110 (within 20% margin).
3. Order Split: 50% to Non-Class-I at INR 100, 50% to Class-I at INR 100 (if they match).

Example 2: Non-Divisible Procurement

1. L1 Bid: INR 100 from Non-Class-I Supplier.
2. Class-I Supplier’s Bid: INR 110 (within 20% margin).
3. Contract Award: Offer to Class-I supplier to match INR 100. If matched, full contract to Class-I.

Role of the Standing Committee

The Standing Committee in the revised Public Procurement Order 2017 plays a crucial role in overseeing the order’s implementation. It supervises compliance to local content requirements, addresses issues that arise, and also provides suggestions to ensure that the order’s objectives are met. By these actions, it facilitates smooth and efficient procurement processes in line with the Make in India initiative.

Understanding the Benefits of the Revised Order

1. To promote local manufacturing and production of goods and services.
2. To enhance income and employment within the country.
3. To utilize government procurement as a powerful tool to support these objectives.

By focusing on these areas, the government aims to create a self-reliant economy that can compete globally while ensuring that the benefits of economic growth are distributed widely among the Indian population.

Conclusion

The revised Public Procurement (Preference to Make in India) Order 2017 represents a significant step towards reinforcing the Make in India initiative. By setting clear guidelines, stringent verification processes, and substantial penalties for non-compliance, the order aims to enhance domestic manufacturing capabilities, increase employment, and ensure fair competition. The current amendment supersedes all previous interpretations and provides a robust framework for promoting local content in government procurement.

For detailed information and specific queries, stakeholders are encouraged to refer to the full text of the order or consult with the relevant Nodal Ministry. The comprehensive approach of this revised order is a testament to the government’s commitment to creating a self-reliant and globally competitive Indian economy.

Source:

For more detailed information, please refer to the official notification from the Ministry of Commerce and Industry, Department for Promotion of Industry and Internal Trade: Revised Public Procurement (Preference to Make in India) Order 2017.