As part of the Atmanirbhar policy, the government has taken steps in ensuring that government procurement gives preference to domestic manufacturers. Such a policy is permissible under the WTO agreement as India has not accepted government procurement to be part of the WTO agreement.
Leveraging this opportunity, the Government issued the Public Procurement Preference to Make in India (PPP-MII) Order in 2017, that mandates government procurement to prefer domestic goods and services for government projects.
Preference to domestic manufacturers is a practice followed globally.
Market access
Hence, India’s PPP-MII policy gives a breather to Indian companies who are being denied market access elsewhere. However, foreign players continue to deny domestic players access to India’s public procurement market, by dumping their products at marginal costing, by exploiting a loophole in the current PPP-MII policy.
The PPP-MII policy allows procurement of projects, as long as 50 per cent of the value addition to that project is happening in India. Unfortunately, for telecom projects (and many other projects), the domestic value addition is consumed by technically less advanced components such as the cost of telecom towers, cement, construction cost etc rather than technically advanced components such as the active components, fibre, GPON, routers etc. This issue was raised by the Cabinet Secretary in 2021.
Given that Bharatnet III has been rolled out, it is imperative that we close loopholes in PPP-MII, failing which foreign firms will continue dumping into India at the detriment of Indian manufacturers.
This issue can be addressed by altering the calculation of local value addition based on ‘project value’ to ‘product value’ at least for those products where we have sufficient domestic manufacturing capabilities with proven track record of delivering to the world.
Our indigenous telecom manufacturing sector is one such sector that has significantly developed its capabilities in the last few years. Most of the equipment that will be required for Bharatnet III need to be sourced from local sources under PPP-MII order. However, due to the loopholes, contractors will end up deploying imported equipment.
Policy tweak
Asserting the domestic capacity and capability of various telecom products need detailed due-diligence and analysis. Nevertheless, considering the policy has been in effect for the last seven years and self-reliance in telecom manufacturing remains elusive, the government should prioritize amending the policy on priority basis.
While PPP-MII aligns with India’s vision for development, a flaw in the current structure in the calculation of local value addition poses a significant challenge. The disproportionate allocation of project costs to civil works by contractors creates loopholes allowing the easy procurement of imported goods, hindering the intended support for Indian manufacturers. There is an urgent need to remedy this situation by either altering the requirements from ‘project’ to ‘product’ value, especially for sectors with robust domestic capabilities.
With the imminent large demand for procurement of digital products for deployment in the upcoming Bharat Net Phase III, immediate rectification of this flaw will be crucial to ensure its applicability in Bharat Net Project and thus moving towards Atmanirbhar in digital manufacturing in India.
Bhattacharya is President; and Subudhi is Senior Policy Analyst, at the Centre for Digital Economy Policy Research