Public procurement: Industry waits for $650-bn opportunity

Exporters fear rise in prices may increase input costs

The recent policy to allow preference to domestic companies in government procurement may open up a massive order basket of an estimated $650 billion per year to domestic manufacturers and service providers.

The entire gamut of government procurement is difficult to estimate but taking into account spending on defence, crude oil, agriculture, it comes to an estimated $650 billion annually, a senior government official said under condition of anonymity.

Although the government procures products and services across the board, Ficci President Pankaj Patel said that sectors in the infrastructure space such as cement and steel, which have stagnated significantly, will receive crucial support as a result.

Domestic industry has brushed off any charges of protectionism that may be attached to the move saying that it has been the norm across the world in major markets, including the United States.

“Definitely, domestic industry needs some form of support, especially since the domestic market itself is open to all competitors. Instead, we welcome companies coming to India, setting up facilities and then taking advantage of the process,” Patel said.

Another area that will remain a major opportunity for domestic players is defence, immediate past president at industry body CII Naushad Forbes argued. “Inspite of being one of the largest defence importers for years, India kept out private industry.” he said.

The investment in development of indigenous products by Indian firms can finally be justified now, he added.

Exporters, however, said input costs will go up. “In sectors like engineering goods, the effect will be felt as steel prices rise even further and anti-dumping restricts access to foreign steel,” a senior Federation of Indian Exports Organisation official said under conditions of anonymity.

On the other hand, oil majors have said they already procure domestically. "The policy by the government will provide a good impetus to the manufacturing industry locally. As of now, we don’t foresee any problem for IOC in procuring items. Being a public sector entity, we are already supposed to source at least 20 per cent of our procurement from SMEs and MSMEs. For IOC, this never had been a problem and our domestic procurement percentage in this regard comes to around 35 per cent," said B Ashok, chairman, Indian Oil Corporation (IOC).

Also, by an advisory issued by Central Electricity Authority, last year, power projects had been asked to procure domestic content to the maximum possible capacity, wherever needed.

However, industry insiders have pointed out that the policy will not help small and medium enterprises (SME) significantly since they are already given preferential treatment and the kind of products they generally make do not necessarily have foreign competitors.

However, such enterprises would benefit in the longer term, Devendra Pant, chief economist, India Ratings, said. “This will be when the price of finished goods which incorporate significant amount of SME inputs rises,” he added.

The push towards making a more clear estimate in this regard had been one of the reasons behind the Directorate General of Supplies and Disposal (DGS&D) under the Commerce and Industry Ministry launching an online portal last August to facilitate procurement.

The new platform aims at increasing transparency in procurement while streamlining the process. It allows government departments and agencies to make direct purchases of common-use goods and services costing up to Rs 50,000.

Sellers have to register on the platform and compete with other players in an open market model with the seller offering the lowest rates being chosen.

The DGS&D under the Commerce Ministry already has more than 21,000 goods and 17 services on its e-marketplace.

Welcome move

• The Cabinet approved a policy, allowing preference to domestic goods and services for govt procurement
• Domestic companies in key infrastructure sectors like cement, steel as well as defence expected to benefit
• Exporters fear a widespread rise in prices to push up their input costs