Selling to the Indian Government
India is not party to the World Trade Organization Agreement on Government Procurement and does not have a free trade agreement with the United States. Indian government procurement accounts for nearly 30 percent of India’s $3 trillion GDP, and in June 2020 the Indian government instituted guidelines stating that no procurements under approximately $27 million could be globally tendered unless the nodal agency could demonstrate that the product or service is unavailable in the Indian domestic market. The Public Procurement Order gives priority to companies with products containing 50 percent or more local content. Products with less than 20 percent local content are categorized as “non-local suppliers” and cannot participate in Indian 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 familiar with India’s bureaucracy when participating in government tenders.
Many of India’s public works projects are financed through borrowing from multilateral development banks. 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 Indian government’s primary procurement organization. To improve the transparency of decision making in public procurement processes and to reduce malpractice, in August 2016 the Ministry of Commerce and Industry set up an online marketplace for public procurement, known as the Government e-Marketplace (GEM).
GEM is a 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.
Project Financing in India
Project financing in India is devised for funding infrastructure and development projects in manufacturing, education, healthcare, telecommunication, public infrastructure (road, metro rail, ports), construction, and energy (power generation, storage, and transmission). There is no overarching legislation that governs project finance in India, and no dedicated government institution or regulator which is exclusively empowered with regulating project financing activities in India. Depending upon the nature of the project finance undertaken, the RBI Act 1934 and the Banking Regulation Act 1949 may apply, along with related guidelines and notifications.
The project finance market in India is mature, with both domestic and cross-border equity and debt structures permitted. Clear and unambiguous guidelines govern such transactions, creating a conducive atmosphere for investing, borrowing, and lending in the infrastructure sector. While financing for projects may come from a variety of sources, the main sources remain equity, debt, and government grants.
The government has recently announced a slew of measures to improve the availability of long-term finance, such as the following:
- Infrastructure debt funds (IDFs): IDFs offer long-term financing to PPP infrastructure projects which have successfully completed one year of commercial operations. As they are still at an early stage now, IDFs have a long way to go before they can be considered a popular financing mechanism.
- Credit Enhancement Scheme: The Reserve Bank of India (RBI) allows banks to offer partial credit enhancements to corporate bonds issued by private entities for financing infrastructure projects. Similarly, India Infrastructure Finance Company Limited – an institution set up by the government to fund infrastructure projects in India – also provides a partial credit guarantee to enhance the credit rating of bonds issued by infrastructure companies to a rating of AA or higher for the refinancing of existing loans.
- Infrastructure investment trust (InvIT): Currently, 12 InvITs are registered with the Securities and Exchange Board of India (SEBI).
- Relaxation of external commercial borrowing (ECB) policy: ECBs are loans in India made by non-resident lenders in foreign currency to Indian borrowers. They are used widely in India to facilitate access to foreign money by Indian corporations and PSUs (public sector undertakings). ECB norms have been relaxed on many occasions to attract borrowing from foreign lenders.
In cases in which financing is taken in bank loans or guarantees, arrangements are governed by applicable laws. For external commercial borrowings, Foreign Exchange Management Act 1999 regulations apply, along with the Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) Regulations 2000, and the Foreign Exchange Management (Borrowing or Lending in Rupees) Regulations 2000.
For project financing in which equity or quasi-equity instruments are used by non-residents, the RBI’s Foreign Exchange Management (transfer or issue of security by a person resident outside India) Regulations 2000 are applicable. The FDI Policy issued the Department of Industrial Policy and Promotion is also applicable in such cases.
Apart from the general regulatory framework, the following laws should also be taken into consideration:
- The Companies Act 2013 regulates matters related to procedural compliance; registration of charge on a company’s assets; conversion of debt into equity in relation to availing of loans and creation of security by companies.
- The Indian Contract Act 1872 governs contracts that include security documents and loan agreements.
- The Transfer of Property Act 1882 regulates the transfer of property.
- The Securitizations and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002 regulates the ability of financial institutions to auction the residential and commercial properties of defaulters to recover loans.
- The Insolvency and Bankruptcy Code 2016 covers partnerships, companies, and individuals in relation to bankruptcy and insolvency; and
- The Code of Civil Procedure 1908 governs procedure for resolving disputes and civil court proceedings to be used by creditors for enforcement of security and recovery proceedings.
Regulatory Authorities
Key regulatory authorities in India include the Airports Authority of India, the National Highways Authority of India, Maritime Boards, the Port Tariff Authority and state level Port Trusts, Directorate General of Hydrocarbons, Central Electricity Regulatory Commission.
Defense Sales
With an estimated 1.44 million active-duty personnel, India has one of the world’s largest military forces and is one of the world’s largest procurers of military equipment. To compete in this dynamic and competitive market, most U.S. companies partner with Indian firms that have strong networks and market knowledge.
In 2016-2017, the Ministry of Defense made several modifications to institutionalize, streamline, and simplify procurement procedures. These procedures were revised in the Defense Acquisition Procedures issued in September 2020 (DAP 2020). DAP 2020 represents an effort to refine capital procurement procedures with a focus on self-reliance and to bolster indigenous manufacturing. To attract foreign original equipment manufacturers 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 requirements. The Strategic Partnership Model can be pursued separately, in sequence, or in tandem within these five categories.
The Office of Defense Cooperation 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 the Office of Defense Cooperation and the U.S. Commercial Service can offer guidance on defense sales and provide contact details of the Ministry of Defense and armed forces offices in India, which 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 be secured by partnering with an authorized agent or representative or establishing a local office in India.
Recognizing the important role that agents play in this sector, DAP 2020 provides a framework for the engagement of agents by foreign suppliers to market their products and platforms 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), original equipment manufacturers 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 to paragraph 22 of Schedule 1 DAP 2020). The process for gaining clearance from the Indian government to hire representatives can be slow and has discouraged many established local representatives in the defense sector from registering as agents for new defense projects.
The tender process that the Indian government uses to acquire new defense equipment can be slow and the time between a request for proposal and the final contract award can take several years. The most successful firms are those with the endurance to diligently follow the process and maintain contact via local representation or directly 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 Sudhir Kesharwani.
Project Financing
Project financing in India has traditionally been confined to core infrastructure projects such as power 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 by the RBI enabled Indian companies and borrowers to raise funds through external commercial borrowings 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. NIIFL manages more than $4.5 billion of capital across its three investment funds.
Multilateral Development Banks and Financing Government Sales
Pricing, payment terms, and financing are significant factors in winning a government contract. Many countries, including India, finance public works projects through borrowing from 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. Commercial Service has a Foreign Service Officer stationed at each of the five 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