Though the government may feel its Public Procurement (Preference to Make in India) Order of 2017 will help boost local manufacturing, it would do well to keep in mind the 1970s-style order has big cost/quality implications. In the 1970s, when foreign exchange was short, no one could import—the current order, of course, applies only to government/PSUs—if there was a local supplier that said it could service the same order; companies had to jump through hoops to prove there was no credible quality supplier locally. This may have helped boost local demand, but above all, it made Indian industry soft and uncompetitive. Something similar is in danger of happening now since, under the Public Procurement Order, a local supplier is to be chosen if its price is up to 20% more expensive than a foreign supplier; and if a foreign supplier wins the bid, half of the order still has to be given to local suppliers at the foreign bidder’s price. Certainly exemptions can be given, but as with all government procedures, they are bound to be cumbersome and time-consuming—and a 20% price margin can be the difference between being competitive and not for PSUs that are covered by the order. Just how cumbersome the process can be has just been brought out by the example of the Railways floating an overseas tender for imported rails.
Railways is in the midst of a massive increase in track modernisation following continuing accidents and so needed to ramp up its purchases—with the public sector SAIL’s capacity not anywhere near what was required, the Railways started to look at the capacity/quality of other local suppliers like JSPL. In the meanwhile, it floated a global tender. The Standing Committee set up to implement the public procurement order has just rapped the Railways for not getting a waiver first—it applied for one on the day it floated the tender—and has said the waiver is a one-time exception, “not to be used as a precedent”. The prime minister’s office has also weighed in, saying “it is very disturbing that the broad message has not been appreciated by various departments … each tender must be examined from the point of view of the interest of Indian manufacturers”. While the principal secretary’s letter talks of how “quality and price” considerations are not to be compromised, how does this square with the Railways writing to say that SAIL has a 15% rejection rate even after so long? If quality was actually to be taken seriously, why would such a letter even be written after the Railways pointed this out? Indeed, the Railways letter to the steel secretary says its views were not included in the minutes of the meeting. And if a PSU like ONGC, say, has to go through such a process of proving local suppliers are not good enough for every import, what does it do to quality and competitiveness; will the committee allow a waiver on grounds imports are cheaper? And, in the case of the steel sector, keep in mind that various forms of government protection and the increase in global prices has resulted in prices rising from `26,222 per tonne last year in February when the minimum-import-price was introduced to over `40,000 today—if such a massive hike in prices is not enough for local producers to turn around their companies, it is not clear what is required.