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 percent of India’s $3 trillion GDP, and in June 2020 the GOI instituted guidelines that no procurements under approximately $27 million could be globally tendered unless the nodal agency could demonstrate that the produce/service is not locally available. The Public Procurement Order (PPO) gives priority to companies with products containing 50 percent or more local content. Products less than 20 percent local content are categorized as ‘non-local suppliers’ and cannot participate in government tenders.
There are occasional reports of government-owned companies calling in the performance bonds of foreign companies with no apparent justification, and it is not unusual for negotiations to be held up at multiple levels within the Indian bureaucracy. Therefore, many foreign firms employ the services of local representatives who are familiar with India’s bureaucracy when participating in government tenders.
Many of India’s public works projects are financed through borrowing from the Multilateral Development Banks. Please refer to the Project Financing section 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.
The Directorate General of Supplies and Disposal is the GOI’s primary procurement organization. To improve transparency of decision-making in the public procurement process and to reduce malpractice, in August 2016 India’s Ministry of Commerce and Industries set up an online marketplace for public procurement - a government-to-business platform known as the Government e Marketplace (GEM).
GEM is a one stop government online platform hosted by the Directorate General of Supplies and Disposal. The portal has largely supplanted human interaction for vendor registration, order placement, and payment processing. India’s central and state governments collectively procure goods and services worth $71 billion annually through GEM. Currently, over 34,000 sellers are registered on the portal selling over 191,000 products.
The Indian government plans to integrate its Central Public Procurement Portal with 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 all government procurement into a single platform leading to economies of scale, better price discovery, and sharing of best practices.
With an estimated 1.44 million active-duty personnel, India has one of the world’s largest military forces and the country is one of the largest procurers of military equipment in the world. It is a sector of strategic importance for U.S. suppliers. To increase penetration in this dynamic and competitive market, most U.S. companies’ partner with Indian firms that have deep networks and market knowledge to facilitate sales.
India’s 2021 Defense Budget is $66.95 billion, a marginal overall increase of 1.45 percent over 2020. Though opportunities abound for U.S. suppliers in this sector, it is important to understand that procurement timelines can be very long, and that persistence, patience, and a willingness to negotiate heavily on price are necessary to succeed in the Indian market.
In 2016-2017, the MOD made several modifications to institutionalize, streamline, and simplify procurement procedures to promote India’s defense sector. These procedures were revised in the Defense Acquisition Procedures issued in September 2020 and are known as DAP 2020. DAP 2020 represents an effort to refine capital procurement procedures with a focus on self-reliance, and to bolster indigenous manufacturing. In an effort to attract foreign original equipment manufacturers (OEMs) to establish manufacturing sites in India, DAP 2020 increases the FDI limit to 74 percent and encourages foreign manufacturers to establish operations in the Defense Industrial Corridors in Uttar Pradesh and Tamil Nadu. DAP 2020 includes five procurement categories: (1) Buy; (2) Buy and Make; (3) Make; (4) Leasing; (5) Design and Development/Innovation. These categories each include sub-categories outlining details on indigenous content. The Strategic Partnership Model can be pursued separately, in sequence, or in tandem within these five categories.
The Office of Defense Cooperation (ODC) at the U.S. Embassy in New Delhi works with the U.S. Commercial Service to assist U.S. suppliers to facilitate defense sales. Both ODC and the Commercial Service can offer guidance on defense sales and provide contact details of the Ministry of Defence and armed forces offices in India that are the primary purchasers of foreign defense goods.
Local Representation in the Defense Sector
U.S. Defense suppliers should assess the merits of having representation in India to assist with market assessments, logistical support, and after-sales service support. This representation can either be through establishing a local office in India (see section title – “Establishing an Office”), or through partnering with an authorized agent or representative.
Recognizing the important role that agents play in this sector, the Defence Acquisition Procedure (DAP) 2020 provides a framework for the engagement of agents by foreign suppliers for marketing their equipment in India, either on a country-specific basis or as part of a global or regional arrangement. At the time of submission of offers (or within two weeks of the engagement of an agent), OEMs are required to disclose full details of the agent, its scope of work, date and period of engagement, and details of specific responsibilities entrusted to the agent (Refer para 22 of Schedule 1 DAP 2020). The process for gaining clearance from the GOI to hire representatives can be slow and has discouraged many established local representatives in the Defense business from registering as agents for new defense projects.
The tender process that the GOI uses to acquire new defense equipment is relatively slow and complex, with the average time between initial the release of a request for proposals and the final contract award often taking several years. The most successful firms are those with the endurance to diligently follow the process and those that remain situationally aware via their local representation or from ongoing contact with Indian government procurement officials. Though tenders are generally posted online, to remain competitive U.S. firms should establish contacts within the Ministry of Defense to track emerging opportunities and understand related requirements well before tenders are officially announced.
For more information about market opportunities in this sector see please contact Commercial Specialist: Nisha Wadhawan
Project financing in India has traditionally been confined to core infrastructure projects such as power projects and the construction of roadways, ports, and airports. Indian banks and non-banking financial institutions finance such projects for Indian borrowers.
Recent liberalization in end use restrictions related to External Commercial Borrowings (ECB) by the Reserve Bank of India will enable Indian companies and borrowers to raise funds through ECBs when the Indian banking system faces liquidity crises due to a high volume of stressed assets.
India’s National Investment and Infrastructure Fund Limited (NIIFL) is an investment institute for International and Indian investors. NIIFL makes equity investments in infrastructure and other growth sectors in India. These funds are registered with the Securities and Exchange Board of India (SEBI). NIIFL manages more than $4.5 billion of capital across its three investment funds.
Multilateral Development Banks and Financing Government Sales. Price, payment terms, and financing are significant factors in winning a government contract. Many governments finance public works projects through borrowing from the Multilateral Development Banks (MDBs). A helpful guide for working with the MDBs is the Guide to Doing Business with the Multilateral Development Banks. The U.S. Department of Commerce’s International Trade Administration 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.
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