Live Mint - 08 February 2023
UK, EU seek access to India’s public procurement market
By Ravi Dutta Mishra
Large Indian companies bidding for government tenders will soon be facing foreign competition as India prepares to open up its $500 billion public procurement market as part of free trade agreement negotiations.
Public procurement of contracts worth over ₹200 crore were opened up in the FTA signed with the UAE last year, in a major policy shift by the ruling National Democratic Alliance. And now, every country India is negotiating with, including the European Union, UK and Australia, is gunning for access to the public procurement market.
A government official said, “The UK and EU won’t negotiate with us if we keep the public procurement market out of the trade talks. Australia has asked for similar access as given to the UAE. The UAE deal is used as a yardstick by other countries. One has to understand that companies from the UK and EU will be able to come in high-tech areas, where requirements for technical standards are high."
Experts said that domestic small businesses would face little challenge if the current minimum of ₹200 croreis maintained. But if a ‘national treatment’ clause in the trade agreements is agreed, small businesses could face stiff competition. Under the national treatment clause, foreign small businesses will be treated similar to the domestic ones.
“They (foreign firms) won’t be able to compete with our firms in, say, road projects. They would incur higher costs compared to our companies. Underwater structure, projects involving large-scale medical equipment or Artificial Intelligence (AI) are the areas that they could come in. Here, cost is a major factor. Our major competition in this sector is with ASEAN (South-east Asian) countries or China," the official added.
People aware of the development said that Indian companies, especially those in the IT sector, have also sought access to the public procurement market in the EU and the UK.
“This is a real concern actually. From the time we have been opposing the inclusion of public procurement in a trade deal to now, nothing has actually changed as far as small businesses are concerned. Once you give in a particular area, it is a slippery slope because in principle, you have agreed to give access. Public procurement is a huge market; so, everyone would want access," Biswajit Dhar, professor at Jawaharlal Nehru University said.
Ajay Sahai, director-general and CEO of the Federation of Indian Export Organizations, said that if the ₹200 crore limit is breached, there will be challenges for domestic firms as foreign MSMEs are quite strong. If the limit is maintained, only the large companies may face some pressure. But large companies are competing in global procurement markets, he added.
The public procurement policy which mandates all central ministries, departments and public sector units to buy 25% of their total annual purchases value from micro, small and medium enterprises will continue, the official added, which means domestic MSMEs will continue to be prioritized.
“For opening public procurement, there are certain terms and conditions, which vary by country. For uniformity the EU has a directive on this. Contracts below a certain value can be reserved for MSMEs," said Arpita Mukherjee, professor at ICRIER.
“Trade agreements cover transparency and clarity in procurement policy and process. Many measures have been taken by India to ensure transparency and reduce corruption in the procurement process. However, we don’t have an overarching government procurement regulation. We also have a quasi-federal structure and states play a key role in procurement," she added.
Queries sent to the commerce ministry, the EU office in New Delhi and the UAE embassy remained unanswered at press time.