A law for opening up Indias huge central government procurement market to private players including foreign entities is on the cards, but at bilateral levels, this process could get faster. The proposed India-European Union trade and investment pact is likely to have an explicit provision allowing entities on either side to participate in the government procurement contracts floated by the other. This could necessitate similar treatment by New Delhi to a host of countries it has signed such free trade pacts with. The India-Japan agreement, for instance, has a specific non-discrimination clause with respect to government procurement.
According to official sources, India has agreed to allow companies from the 27-member EU to participate in the competitive bidding for central government and PSU procurement tenders, including those called by the railways and the National Highways Authority of India. The market access for European firms could, however, be restricted to contracts above a (high) threshold value, so that the Indian small-scale industry is not affected by the increased competition. Of course, Indian IT and insurance firms would in return access to the European state purchases, although analysts said the higher quality specifications set by individual European countries could pose a challenge for Indian firms in many areas.
This (opening up government procurement) was part of the negotiations, but we will not go beyond our domestic laws. Nothing that we commit will later on result in tweaking our domestic laws on government procurement. We will protect our domestic industry, a senior commerce ministry official told FE.
Government purchases have largely remained the preserve of PSUs, but the sector has seen significant opening up to domestic private players in recent months, after the more transparent bidding norms facilitated by the Central Vigilance Commission. Public procurement (which includes central/state government/ PSU purchases and the buys by local government) accounts for a quarter of Indias GDP. The EU, in the throes of coming out of an economic crisis, is credited with a multi-billion market of government purchases estimated at 10-15% of the GDP of region. Currently, of the multi-billion-euro government procurement in the EU, less than 1% is accessed by non-EU players.
Indias offer to open up government procurement bilaterally for the EU comes at a time when the Public Procurement Bill, 2012, (which was introduced in Lok Sabha) is being examined by the parliamentary standing committee on finance. India currently has an observer status in the agreement on government procurement (GPA), a plurilateral treaty under the World Trade Organisation (WTO) to increase market access in this area.
The advantage to India from the proposal is that we will get access to EUs 27 member nations while out keeping out the contentious issues related to our own states. We have maintained that we will not accept any commitments as far as government procurement is concerned, said Biswajit Dhar, director general, Research and Information System for Developing Countries.
The India-EU FTA will be on the agenda during the talks between German Chancellor Angela Merkel and Prime Minister Manmohan Singh, who is travelling to Berlin on April 10 on a bilateral visit Though the public procurement Bill states that the procuring agency shall not limit participation of bidders or discriminate against bidders, it significantly has broad provisions to protect the domestic industry. The Bill specifies that the Centre can provide for mandatory procurement from a specified category of bidders to promote domestic industry, its socio-economic policy, and other considerations in public interest. The Bill also says that there can be limitations in participation of certain bidders to ensure protection of public order and morality, animal or plant life, intellectual property and national security. These clauses in the Bill offer the policy space for the government to include clauses that will provide for local sourcing and help in the development of domestic industries. These clauses will also help in giving preferential treatment to domestic industries including by reducing the tender fees for them. It is not clear if these safeguards would remain in place even if market access is provided to the EU under the proposed pact.
The India-Japan Comprehensive Economic Partnership Agreement (CEPA) has a provision stating that if either of the parties offers any advantageous treatment on government procurement to any other party, then they (India and Japan) should consider extending similar advantageous treatment on a reciprocal basis to each other. Though the CEPA with Japan has commitments on information sharing and transparency sharing, it has no specific mention or explicit provision on providing market access. This means that if India finally opens up its government procurement market to EU companies, it will soon have to do the same for Japan too. Other countries such as South Korea, Singapore and Asean member nations, which also have CEPAs with India, may follow suit later.
* India-EU trade pact likely to have an explicit provision allowing participation in govt procurement contracts
* This could necessitate similar treatment by New Delhi to a host of countries it has signed such free trade pacts with
* Market access for European firms could be restricted to contracts above a threshold to protect small industries
* Govt purchases have largely remained the preserve of PSUs, but has opened up to domestic pvt players recently