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Changes In Public Procurement Rules (27 July 2020)

Changes In Public Procurement Rules (27 July 2020)

Why in News:

Government of India amended the General Financial Rules of 2017 to enable the imposition of restrictions on bidders from countries which share a land border with India, on grounds of defence of India or matters directly or indirectly related thereto including national security.

Context:

The department of expenditure has under the said rule issued a detailed order on public procurement to strengthen the defence of India and national security. As per the order, any bidder from such a country sharing a land border with India will be eligible to bid in any procurement whether goods, services or works only if the bidder is registered with the Competent Authority.  Political and security clearance from the Ministries of External and Home affairs respectively will be mandatory.

Background:

Government procurement or in standard government-funded public procurement through a parastatal, state governments, etc. is outside the purview of the WTO regime as India has not signed the agreement on public procurement.

So the public procurement is regulated by National laws in accordance with principles and priority segments and the registration of vendors is a standard practice which is now expanded specifically for bidders from land bordering countries.

There also 2 exceptions have been made, where the lines of credit have been extended by the Government of India.

The government has been taking a series of measures in recent months to restrict the inflow of Chinese investments and products into the country.

Summary of the Debate

Ambit and structure of General Financial rules of 2017:

  • Under rule 144, sub-provision has been added, which says that because of national security reason government can exclude any countries and or impose conditions.
  • The state government could possibly carry on with their procurement from companies which are located in neighbouring countries.
  • It will cover not only the central government agencies but state governments and public-private partnership also.

Need to amend the rules:

  • To prevent the influx of Chinese products and investments into India.
  • To make sure an organization manages its business without compromising its flexibility.
  • Defence of India and its national security.

Impact on Foreign Companies across the border:

  • All FDIs that need to come in where we share borders need to go through the proper approval route.
  • No Global Tender Enquiry (GTE), however, shall be invited for tenders up to Rs 200 crore or such limit as may be prescribed by the Department of Expenditure from time to time.
  • Earlier in April, the government had amended the FDI rules mandating prior approval for investment by entities in countries that share land borders with India.
  • The move came days after China’s central bank, the People’s Bank of China (PBoC), raised its shareholding in Housing Development Finance Corporation (HDFC) to over one per cent.

Impacts on India:

  • It will encourage Indian contractors to build and to get together with other contractors who have a financial edge to build for very large projects.
  • A big boost to domestic suppliers, especially MSMEs.
  • Apart from attached ministries and departments and subordinate bodies, this new order will be applicable to all autonomous bodies, public sector banks and financial institutions, central public sector enterprises, public-private partnerships receiving financial support from the government or public sector undertakings, union territories and National Capital Territory (NCT) of Delhi and the linked agencies.

Important facts for Prelims

  • As per the new order, any bidder from such country sharing a land border with India will be eligible to bid in any procurement whether goods, services or works only if the bidder is registered with the Competent Authority.
  • The Competent Authority will be the Registration Committee constituted by the Department for Promotion of Industry and Internal Trade (DPIIT).
  • It will be required to take mandatory political and security clearance from the Ministries of External and Home Affairs, respectively.
  • For State Government procurement the Competent Authority will be constituted by states but political and security clearance will remain necessary.
  • Relaxation will be provided for the procurement of medical supplies for containment of COVID-19 global pandemic till December 31.
  • The order for prior registration will not apply for countries to which the Government of India extends lines of credit or provides development assistance, even if it shares a land border with India.
  • India shares its border with China, Nepal, Bhutan, Pakistan, Bangladesh and Myanmar.
  • Bangladesh, Nepal, Myanmar has been exempted from this new order as India has extended lines of credit to these countries.
  • This order will also not apply to cases where orders have been placed or a contract has been concluded or letter of acceptance has been issued, but new tenders will be covered under this order.
  • The order will also not apply to procurement by private sectors.

Important points made by the Guests

K. A. Badrinath, Senior Journalist

  • Product preference and price preference had been a issue limited to few sectors, few products and few services. This ambit seems to have been expanded in a big way.
  • In the last few months, whatever has happened between China and different countries around the world, India cannot be a spectator to such developments.
  • Both countries are trying to work out a mechanism on the border issues and their repercussions are bound to felt elsewhere around the world.

S. C. Pandey, Advisor, Ministry of Commerce and Industry

  • These measures, the financial significance of that has to be understood how much impact it is likely to make for Indian companies to get ready for this.

Jayant Dasgupta, Former Ambassador, WTO

  • The Procurement system for Goods and Services has a large overlap with the Government-e-Market place (GeM).
  • But there are agencies which took large tender for the project, which is going to be brought in within the purview of this order which has come out.
  • The bidding process in India in the Government procurement agreement one of the condition is that, if you reject somebody’s bid then you have to give reasons for it and you have to supply a copy of that to fail bidder.

Way Forwards:

  • The private companies need to build the resilience to lean without Chinese products and services.
  • Many of the components which come from China can be a source from other places.
  • Several Investments has been made by Chinese companies in this country, perhaps unless there is a geo-strategic and political agreement on issues of bilateral importants, these companies perhaps need to think in the long term about how to do business in this country.

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