Describes how major projects are secured and financed. Explains activities of the multilateral development banks in and other aid-funded projects.
Selling to the Government
India is not party to the World Trade Organization Agreement on Government Procurement (GPA) and does not have a free trade agreement (FTA) with the United States. Government of India procurement accounts for nearly 30 of India’s $3 trillion GDP. In June 2020 the Government of India instituted guidelines that no procurements under Rs 200 crore (roughly $27 million) could be globally tendered unless the nodal agency could demonstrate that the produce/service is not locally available. This will restrict the ability of U.S. companies from competing for GOI tenders unless they have strong local content in the product/bid.
There are occasional reports of government-owned companies calling in the performance bonds of foreign companies with no apparent justification. It is not unusual for negotiations to get held up at multiple levels within the Indian bureaucracy with little communication on progress. Therefore, many foreign firms seek local representatives, familiar with India’s bureaucracy to expedite their activities.
Many public works projects are financed through borrowing from the Multilateral Development Banks. Please refer to the “Project Financing” section in the “Trade and Project Financing” chapter of this document for more information. When foreign financing is involved, principal government procurement agencies tend to follow multilateral development bank requirements for international tenders. In other cases, procurement practices can result in discrimination against foreign suppliers when goods or services of comparable quality and price are available locally.
Directorate General of Supplies and Disposal (DGS&D) is the primary procurement organization of the GOI tasked with purchases by various government organizations. In August 2016, to improve transparency of decision-making in the public procurement process and to reduce malpractices, India’s Ministry of Commerce and Industries set up an online marketplace for public procurement - a Government-to-Business platform (G2B).
This portal has eliminated human interaction for vendor registration, order placement and payment processing to a great extent. Both the central and state governments collectively procure goods and services worth $71 billion annually through this portal. Currently, over 34,000 sellers are registered on this portal selling over 191,000 products. Government e-Marketplace (GeM) is a one stop Government online platform hosted by the Directorate General of Supplies and Goods (DGS&D). Following are two GeM links to get started:
The Indian government plans to integrate its Central Public Procurement Portal (CPPP) with the Government e-Marketplace (GeM) to improve buying and selling processes for ministries, departments and other Indian government agencies. The Indian government is developing a unified procurement system that will consolidate the entire government procurement into a single platform leading to economies of scale, better price discovery and sharing of best practices. This integration is expected to be completed by the end of 2020.
The Defense industry of India is a strategically important sector in India. With an estimated strength of over 1.44 million active personnel, it is one of the world’s largest military force. The total budget sanctioned for the Indian military for the financial year 2019 is $60.9 billion.
“Defense Production Policy of 2018” (DPP-2018) aims to make India the top 5 global producers of the aerospace and defense manufacturing with an annual export target of $5 billion by 2025. India is one of the largest arms importers in the world of mostly high-tech, high-value equipment such as aircraft, ships, submarines, missiles, and drones. Imports account for over 50 of defense equipment current in use. However, in August 2020, the Ministry of Defense listed 101 defense items prohibited for import under its “self-reliance” mission.
Defense procurement is governed by the Defense Procurement Procedure. The present DPP 2016 is the latest revision of DPP that was released in March 2016. DPP-2016 made the promotion of indigenous design, development, and manufacture of defense equipment a priority. The ’Make in India’ initiative has additional local content requirements.
Most U.S. defense companies partner with local Indian companies to increase their market penetration. Under the ‘Make in India’ initiative, there are broadly five procurement categories with special preference being given to the first three below:
- Buy (Indian – indigenously designed developed and manufactured): Direct purchase from an Indian vendor whose products meet indigenous content requirements.
- Buy & Make (Indian): Purchase from an Indian vendor (including an Indian company forming joint venture/establishing production arrangement with the OEM), followed by licensed production manufacture in the country.
- Buy (Indian): Direct purchase from Indian vendors whose products meet minimum indigenous content requirement.
- Buy & Make: Purchase from a foreign vendor followed by licensed or indigenous manufacture in the country.
- Buy (Global): Purchase from a foreign supplier.
In May of 2017, the GOI released its “Strategic Partnership” model (SPM) to increase India’s defense manufacturing capacity. Under the SPM, the GOI will shortlist original equipment manufacturers (OEM) to work with a selected strategic partner to manufacture the platform in India, transfer technology, provide life-cycle support, and develop an eco-system of domestic manufacturers.
In March 2020, Mr. Rajnath Singh, the Defense Minister of India unveiled a draft of Defense Procurement Procedure 2020. The draft proposal includes:
- Higher indigenous content – Boost to ’Make in India’ program
- Incentives for local material and software as a part of ‘Make in India’
- After Sales Support to be included within the Capital Acquisition Contract
- Leasing of defense equipment – this was introduced for the first time
- Emphasis on product export under offsets.
For more information about market opportunities in this sector see please contact Commercial Specialist Nisha Wadhawan
Local Representation in Defense Sector is Invaluable
U.S. defense suppliers should assess the merits of having representation in India to assist with market assessments, logistical support, and after-sales service. This representation can either be through the supplier’s own office presence in India (see section ‘Establishing an Office’), or through an authorized representative.
Recognizing their need, and the important role that agents play in this sector, the Defense Procurement Procedure 2016 (DPP 2016) lays down a framework for the engagement of agents by foreign OEMs for marketing their equipment in India, either on a country-specific basis or as part of a global or regional arrangement.
The DPP 2016 expressly allows the use of agents by foreign OEMs, albeit with strict oversight and a requirement to comply with a comprehensive disclosure regime. OEMs are required to disclose at the time of submission of offers (or within two weeks of the engagement of an agent): full details of the agent, their scope of work, date and period of engagement, and details of specific responsibilities entrusted to the agent.
The regulations require both the principal and the potential local representative to meet the stipulated requirements. The foreign supplier must apply to the Ministry to register the relationship reached with the agent. The regulations also call for complete disclosure of the principal- agent relationship in all its aspects.
The process for gaining clearance from the GOI to hire such a representative can be slow. These requirements have discouraged many established local representatives in the defense business from registering as agents for new defense deals. The Office of Defense Cooperation (ODC) within the U.S. Embassy in New Delhi works with the Commercial Service to assist U.S. firms by providing contact details of Ministry of Defense (MOD) and Military Service offices that are the main purchasers of foreign defense goods for India and offers advice on strategies for defense related sales. The tender process that the GOI uses to acquire new defense equipment is relatively slow and complex, with the average time between initial release of a request for proposal and the final contract award often taking several years. The most successful firms are those with the endurance to diligently follow the process and being situationally aware via their local representation or from contact with GOI officials. Though tenders are generally posted online, most U.S. firms will want to establish MOD contacts, understand emerging opportunities and related requirements well before tenders are officially announced. Many ministries announce tenders specific to their ministry on their own websites.
Find a listing of several Government of India websites.
Financing of Projects
Project financing in India has traditionally been confined to core infrastructure projects such as power projects, construction of roadways, ports, and airports. Indian banks and non-banking financial institutions have been lending to Indian borrowers for financing such projects.
Recent liberalization in the end use restrictions related to External Commercial Borrowings (ECB) by Reserve Bank of India is seen as a step in the right direction as this will enable Indian companies and borrowers to raise funds through ECBs, when the Indian banking systems is facing liquidity crisis due to high volume of stressed assets.
The National Investment and Infrastructure Fund (NIIF): NIIF is an institution anchored by the Government of India that acts as a fund manager and invests in infrastructure and related sectors in India. NIIF is a collaborative investment platform for international and Indian investors with a mandate to invest equity capital in domestic infrastructure. NIIF aims to make commercial investments in the sector at scale. NIIF Limited manages over $4 billion of capital commitments across three funds, each with its distinct investment strategy.
Multilateral Development Banks and Financing Government Sales. Price, payment terms, and financing can be a significant factor in winning a government contract. Many governments finance public works projects through borrowing from the Multilateral Development Banks (MDB). A helpful guide for working with the MDBs is the Guide to Doing Business with the Multilateral Development BanksThe U.S. Department of Commerce’s (USDOC) International Trade Administration (ITA) has a Foreign Commercial Service Officer stationed at each of the five different Multilateral Development Banks (MDBs): the African Development Bank; the Asian Development Bank; the European Bank for Reconstruction and Development; the Inter-American Development Bank; and the World Bank.
Learn more by contacting the:
Commercial Liaison Office to the Asian Development Bank
Commercial Liaison Office to the World Bank
Methods of Payment: Import financing procedures adhere to western business practices. The safest method of receiving payments from Indian importers is through an irrevocable letter of credit (L/C). The L/C should be payable in favor of the supplier against presentation of shipping documents through the importer’s bank. Importers open L/Cs valid for three to six months depending upon the terms of the agreement. Typically, L/Cs are opened for a specified period to cover production and shipping. There are several lines of credit available to U.S companies.
The Indian Rupee is partially convertible currency. The Reserve Bank of India (RBI) and Foreign Exchange Management Act, 1999 govern transactions involving foreign exchange. RBI delegates its powers to authorized dealers with suitable guidelines to deal in foreign exchanges.
Indian importers must comply with guidelines in Master Direction-Import of goods and services for import related payments. The guidelines specify time limits for import payments and advance remittances including interest payment mechanism. They also cover procedures for receiving import documents and for purchase of foreign currency, gold, aviation goods, non-physical imports, and other special situations such as import payments through online Payment Gateway Service Providers.
A resident Indian may pay for import of goods in foreign exchange with international credit card or debit card issued through the credit/debit card servicing bank in India against the charge slip signed by the importer and if the transaction conforms to the foreign trade policy in force.
RBI authorized banks can enter into factoring arrangement with international factoring companies, preferably, members of the Factors Chain International. RBI approval is not required for transactions compliant with latest foreign trade policy and import related foreign exchange guidance.
Deferred payment arrangements (including suppliers’ and buyers’ credit) up to five years are treated as trade credits. RBI has issued related guidance in Master Direction - External Commercial Borrowings, Trade Credits and Structured Obligations (Updated as of August 8, 2019). Indian importers have access to trade credits extended by overseas suppliers, banks, financial institutions, and other lenders recognized in this framework. They can choose between local currency or foreign currency for import of capital goods and non-capital goods allowed under India’s foreign trade policy.
India also has its credit rating framework enabled by credit rating agencies registered and authorized by Securities and Exchange Board of India (SEBI). Such agencies compute and share credit scores and reports with financial institutions and applicants. Credit rating agencies in India include Credit Rating Information Services of India Limited (CRISIL), India Rating and Research Private Limited, The Investment Information and Credit Rating Agency (ICRA), Credit Analysis and Research Limited (CARE), Brickwork Ratings India Private Limited, SMERA Ratings Limited and Infometrics Valuation and Rating Private Limited.
The card mechanism in India supports a wide variety of debit and credit cards issued by banks and supported by Visa, MasterCard, Discover, American Express, RuPay and JCB networks. According to the Reserve Bank of India (RBI), the number of credit cards and debit cards issued have soared to 50 million and 824 million, respectively.
For more information about the methods of payment or other trade finance options, please read the Trade Finance Guide available at www.Export.gov/TradeFinanceGuide.