‘Make in India’ 2.0: Here’s why the time is ripe for PM Narendra Modi’s flagship project

Published: February 11, 2020 5:10:50 AM

The last 2017 orders have been improved twice so far, firstly in 2018 by expanding their scope to cover works and turnkey contracts, and more recently in 2019 when administrative action against erring officials has also been permitted for non-compliance.

The range of strategies that are used internationally for supporting national economic growth through public contracting are both well-researched and easily available in the public domain.The range of strategies that are used internationally for supporting national economic growth through public contracting are both well-researched and easily available in the public domain.

By Sandeep Verma

With the Prime Minister having recently made a strong pitch outlining his vision for India to become a $5-trillion economy by 2024-25, the kind of innovative suggestion made thereafter by the Chief Economic Adviser (CEA)—namely an ‘Assemble in India’ strategy as a sub-part of the ‘Make in India’ initiative—is just the right kind of solution that can be quickly incorporated within our public policy spaces. In fact, now that the CEA has let the cat out of the bag—ensuring, in the process, that ‘assembly-centric’ manufacturing may perhaps no longer remain an F-word—it may be interesting to examine how government of India’s evolving public procurement frameworks (such as ‘Make in India’ and the MSME policies) and public procurement platforms (such as the Government e-Marketplace: the GeM) could be aligned with the core elements of the PM’s vision and the CEA’s suggested toolkit.

Of course, this kind of policy and implementation focus was wanting some years ago; this author recalls a particularly curious government tender circa 2010, where the Notice Inviting Tender (NIT) had eligibility conditions allowing only Indian entities to bid, but the technical specifications and performance characteristics contained therein stipulated that the supplied product must be fully imported! Thankfully, that kind of wizardry is now a rare event in government tenders; for almost a decade now, we have witnessed a concerted and steadily stronger approach to embedding local manufacturing and MSME contracting requirements within India’s public procurement frameworks, leveraging the size of her public procurement marketplace, both federal and state, comprising over 20% of her GDP. Within this context, some notable government of India policy initiatives have been the (2012) public procurement policies for MSMEs; the (2013) policy for preferences to domestically manufactured electronic goods; the (2013) defence procurement procedures prioritising ‘Buy Indian’ and laying down indigenous content requirements; and the (2017) orders for preference to ‘Make in India’ in public procurement. The last 2017 orders have been improved twice so far, firstly in 2018 by expanding their scope to cover works and turnkey contracts, and more recently in 2019 when administrative action against erring officials has also been permitted for non-compliance.

Using public contracts for fostering economic growth

International experience shows that public procurement frameworks can significantly foster economic growth in a number of interesting ways, right from imposition of core domestic manufacturing and MSME participation requirements in public contracts, to cleverly using counter-obligations and offsets to nudge foreign vendors to integrate domestic manufacturers within their global supply chains, and to using modern IPR-allocation practices in favour of researchers under publicly-funded R&D programmes with consequential domino effects on commercialisation of innovation.

A quick review of the Buy America (BA), Buy American Act (BAA) and Federal Acquisition Regulation (FAR) system of the US, for instance, reveals important drivers for promoting domestic manufacturing and embedding small businesses (MSMEs) as part of public procurement actions of the government. The BA/BAA/FAR system restricts foreign bidders by default, and covers both federal and federally-funded procurement, in comparison to the Indian system that requires procuring officers to issue case-by-case basis decisions before restricting foreign bidder participation and which covers central government procurement alone. Indian rules, therefore, leave unaffected a sizeable public procurement market share in terms of state government-run infrastructure contracts and procurements such as medical devices for health service delivery. State government procurements in India, therefore, continue to remain open to foreign bidder participation and foreign-manufactured goods, even when their projects are substantially financed by the central government.

Again, the US system allows departments to set targets for MSME participation both as prime contractors and as sub-contractors, unlike the Indian system that covers MSMEs only as primes. The BA/BAA/FAR system also mandates minimum levels of work to be performed by MSMEs themselves when acting as prime contractors, thus restricting pass-through to non-MSME entities, while also allowing procuring officers to require submission of MSME sub-contracting plans and according weightages to such plans during contract award decisions: aspects that India could easily incorporate for supporting an ‘Assemble in India’ strategy. Suitable improvements to the GeM platform as already envisaged in the 2017 orders may also perhaps need immediate implementation, now that the GeM has been increasingly made available for state government and municipal procurements, even though the latter set are not required to follow MSME and domestic content requirements set forth by the government of India herself.

Commercialisation of public-funded R&D

IPR-allocation systems for public-funded R&D as in the US and the EU could also inspire the India story, now that our National IPR Policy (2016) clearly mandates promotion of licensing and technology transfer for IPRs, and suggests devising contractual and licensing guidelines to enable commercialisation of IPRs. While a draft national innovation Bill has been in circulation right since 2008, India could consider quickly adopting modern boiler-plate contractual templates such as the US’s Bayh-Dole Act that encourage private sector commercialisation by allocating IPR ownership to researchers themselves, with the government or public entity retaining the bare minimum licensing and march-in rights necessary to protect the public interest.

A Bayh-Dole-type formulation for allocation of IPR rights between contracting parties was, in fact, drafted for the Ministry of Defence in late 2013, eventually forming part of ‘Make’ procedures under the Defence Procurement Procedure (DPP) that were issued by the ministry in 2016. This standard template already forms part of the public procurement discourse in India, and could, therefore, be readily incorporated as a general condition of contract by other government of India ministries and departments as well.

The recommendations

The range of strategies that are used internationally for supporting national economic growth through public contracting are both well-researched and easily available in the public domain. It, therefore, appears to be a given that many of these successful toolkits will be increasingly used by India’s senior policymakers for supporting the focal point of economic growth set by the country’s dynamic and visionary political executive at the highest levels.

The task of making India a $5-trillion economy in the next four years is, indeed, an achievable one, as emphasised by our finance minister, but one that will require all interested stakeholders to participate vigorously—at various levels such as the federal, provincial and municipal—in clever use of the size of our public procurement marketplace through innovating mechanisms that have already been successfully demonstrated elsewhere in a number of advanced jurisdictions.

The author is principal secretary, Public Health Engineering & Ground Water departments, Rajasthan. Views are personal

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