On July 19, 2024, the Department for Promotion of Industry and Internal Trade (DPIIT) released an updated version of the ‘Public Procurement (Preference to Make in India) Order, 2017.’ This revision is designed to bolster the ‘Make in India’ initiative, encouraging the use of domestically manufactured products and promoting local industry growth. The order seeks to increase local production by leveraging government procurement, boosting local content through partnerships, production units, joint ventures, and local employee participation. Effective from July 19, 2024, and issued under Rule 153 (iii) of the General Financial Rules 2017, it modifies previous orders dated June 15, 2017; May 28, 2018; May 29, 2019; June 4, 2020; and September 16, 2020. CDSCO, MD-14, SUGAM, Medical device, India, Registration.
Definitions and Local Content Calculation
Local content is defined as the value added in India, calculated as the total value of the item procured (excluding net domestic indirect taxes) minus the value of imported content (including all customs duties), expressed as a percentage. Exclusions from local content calculation include imported items sourced locally from resellers or distributors, license fees, royalties, and technical charges paid outside India, and repackaged, refurbished, or rebranded imported products.
Supplier Classifications
- Class-I Local Supplier: Goods, services, or works meeting the highest minimum local content requirements.
- Class-II Local Supplier: Goods, services, or works meeting lower local content requirements than Class-I.
- Non-Local Supplier: Goods, services, or works with local content less than that prescribed for Class-II local suppliers.
Special Treatment, Eligibility, and Purchase Preference
Manufacturers under the Production Linked Incentive (PLI) scheme are treated as Class-II local suppliers unless they meet Class-I local content requirements. This status is valid for a specific period as notified by the PLI Ministry. Class-I local suppliers are eligible for all procurements where there is sufficient local capacity and competition. Class-II local suppliers are eligible except where global tender enquiries are issued. Only global tender enquiries are open to non-local suppliers. This includes relevant sectors such as medical devices, with a focus on registration processes governed by the Central Drugs Standard Control Organization (CDSCO), as well as the implementation of systems like SUGAM and MD-14 to streamline compliance and foster local manufacturing in India.
Purchase Preference for Divisible and Non-Divisible Contracts
| Contract Type | Scenario | Action |
| Divisible | L1 is a Class-I local supplier | Full contract awarded to L1 |
| Divisible | L1 is not a Class-I local supplier | 50% of the order quantity goes to L1; remaining 50% offered to the lowest Class-I local supplier matching the L1 price within the purchase preference margin |
| Non-Divisible | L1 is not a Class-I local supplier | Lowest Class-I local supplier within the purchase preference margin is invited to match the L1 price |
| Non-Divisible | No Class-I local supplier matches L1 price | Contract goes to L1 |
Exemptions and Content Rules on GeM
Certain procurements are exempt from this order, including small purchases below Rs. 5 lakhs and the procurement of spare parts and consumables for closed systems and maintenance/service contracts with original equipment manufacturers. The minimum local content requirements are 50% for Class-I local suppliers and 20% for Class-II local suppliers, with Nodal Ministries able to set higher local content requirements if needed. The margin of purchase preference is 20%. Items meeting the minimum local content requirements must be marked on the Government E-Marketplace (GeM), with provisions for automated comparison with and without purchase preference and for obtaining consent from local suppliers when purchase preference is exercised.Regulatory requirements ensure compliance with these standards.
Verification and Compliance
To ensure compliance, bidders must self-certify their local content during tendering. For contracts above Rs. 10 crores, certification by statutory auditors or practicing cost/chartered accountants is required. Penalties of up to 10% of the contract value may be imposed for failing to meet local content requirements. Regulatory compliance is critical, and complaints are handled by competent authorities, with potential debarment for false declarations. This is particularly relevant for the medical device sector in India, where registration processes governed by CDSCO, using systems like SUGAM and MD-14, ensure Regulatory compliance.
Oversight and Transitional Provisions
A standing committee, chaired by the Secretary of DPIIT, will oversee the implementation, compliance, and periodic review of this Order, meeting at least once every six months. Ministries and Departments may issue clarifications and instructions to remove implementation difficulties, and existing policies approved post-January 2015 that offer local content preference will prevail over this Order. The Order does not apply to tenders or procurement notices issued before July 19, 2024.
Conclusion
The revised Public Procurement Order 2017 strengthens the ‘Make in India’ initiative by prioritizing local suppliers and enhancing domestic production. By setting clear definitions, eligibility criteria, and procurement preferences, the order aims to maximize local content in public procurement. This approach supports local businesses, boosts employment, and strengthens India’s economic self-reliance. Effective oversight and provisions for adjustments ensure the order remains responsive to implementation challenges, fostering a robust and competitive manufacturing sector in India.For support with compliance and market readiness, Morulaa can assist. To know more about how they can support you, click here or email them at [email protected].