India - Selling to the GovernmentIndia - Selling to the Government
Many governments finance public works projects through borrowing from the Multilateral Development Banks. Please refer to the “Project Financing” section (page 138) in the “Trade and Project Financing” chapter of this document (page 136) for more information.
India is not party to the World Trade Organization Agreement on Government Procurement and does not have a free trade agreement (FTA) with the United States that contains commitment on government procurement.
The estimated size of the government procurement market at the central government level in India is about $300 billion. Indian government procurement practices and procedures often lack transparency and standardization, which can frustrate foreign suppliers.
There are occasional reports of government-owned companies calling in the performance bonds of foreign companies, even when there was no dispute over performance. It is not unusual for negotiations to drag on for months and be held up at more than one level within the Indian bureaucracy for long periods with no discernible movement or reason given for lack of progress.
Accordingly, some firms seek local representatives who are familiar with the culture and customs of India and are familiar with ways to expedite their product or service through the maze of bureaucracy in government ministries. When foreign financing is involved, principal government procurement agencies tend to follow multilateral development bank requirements for international tenders. However, in other purchases, current 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. Recently, they have started an online e-procurement portal to facilitate the procurement of common use goods & services required by various Indian government departments, organizations, and public-sector undertakings (PSU). Government E-Marketplace (GeM), is expected to enhance transparency, efficiency and speed in public procurement. For more information visit: https://gem.gov.in/.
The competent authority invites tenders with a view to purchase goods and services. Suppliers, including foreign companies, willing to compete may submit tenders agreeing to supply goods of the requested specifications. Indian agents who desire to quote directly on behalf of their foreign manufacturers/principals can also apply. Evaluation of the tenders received is one of the most significant areas of purchase management. The purchase officer is required to prepare a comparative statement of quotations received, in the order in which the tenders were received. Upon completion of the scrutiny, tenders are consolidated into a statement, in ascending order of the evaluated prices, to get a clear picture of their standing as well as comparative financial impact. Before awarding a contract to the lowest evaluated responsive tender, the purchase organization usually ensures that the price to be paid is reasonable. Before placing an order with the successful bidder, the latter is informed in writing of the acceptance of his proposal and the time within which he is required to furnish performance security. The GOI is increasingly requiring local content as part of their tenders in its Make in India program (see below).
Defense procurement is governed by the Defense Procurement Procedure (DPP 2016). The Ministry of Defense released the latest revision of DPP in March 2016. The latest DPP has made the promotion of indigenous design, development and manufacturing of defense equipment a priority, and the “Make in India” initiative has additional local content requirements. For this reason, many U.S. defense businesses are partnering with local vendors 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 categories:
- 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 OEM), followed by licensed production/indigenous manufacture in the country.
- Buy (Indian): Direct purchase from Indian vendors whose products meet a minimum indigenous content.
- Buy & Make: Purchase from a foreign vendor followed by licensed production/indigenous manufacture in the country.
- Buy (Global): Purchase from foreign or Indian vendors. To develop India’s defense capabilities, there is also a “Make” category that can be pursued separately, in sequence or in tandem with any of the five above categories. Acquisitions in the ‘Make’ category must be designed, developed and manufactured by an Indian vendor. For more information about market opportunities in this sector see, the section on Defense and contact Commercial Specialist Nisha Wadhawan at email@example.com
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 (OEMs) to work with the selected strategic partner to manufacture the platform in India, transfer technology, provide life-cycle support, and develop an eco-system of domestic manufacturers.
Local Representation in Defense Sector is Invaluable
U.S. defense suppliers should assess the merits of having some representation in India to assist in market assessments, logistical support, and after-sales contact. This representation can either be through the supplier’s own office presence in India (see above section “Establishing an Office”), or through an authorized representative. Caution must be exercised when seeking local expertise to adhere to Indian laws.
In November 2001, the GoI lifted the ban on agents for defense purchases. Regulatory provisions were announced for Indian authorized representatives and agents, where permissible, in defense purchases. The regulations require both the principal, as well as the potential local representative, to meet the provisions stipulated: it is the foreign supplier that must make an application 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 also be very 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 in New Delhi 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 follow the process through and the situational awareness that comes from local representation or from contact with GOI officials. Tenders are generally posted to the Internet, but most U.S. firms will want to establish MOD contacts and understand emerging opportunities and the requirements process well before tenders are publicly announced. Many ministries announce tenders specific to their ministry on their own websites.
Find a listing of several Government of India websites at http://www.sarkaritel.com/ministries.
Prepared by our U.S. Embassies abroad. With its network of 108 offices across the United States and in more than 75 countries, the U.S. Commercial Service of the U.S. Department of Commerce utilizes its global presence and international marketing expertise to help U.S. companies sell their products and services worldwide. Locate the U.S. Commercial Service trade specialist in the U.S. nearest you by visiting http://export.gov/usoffices.
India Trade Development and Promotion