The Indian government has made a far bolder move by opening up its procurement space. Now, foreign players—particularly UK firms—are able to play on a level playing field with in-country small and medium enterprises. India is now in the thick of negotiations with the United States on a trade agreement. This agreement should feature significant concessions to permit more foreign participation in domestic government procurement. While the opportunity for UK firms to win contracts totaling $38 billion is significant, hurdles still exist.
UK firms will find it one of their biggest challenges dealing with India’s legacy problems in public procurement. Challenging payment delays and challenging contract enforcement will be especially high hurdles to overcome. Srijan Shukla from the Observer Research Foundation drives home a major point. Ensuring payment discipline The payment discipline continues to be a challenge, especially when dealing with a government entity in India. Foreign suppliers are deeply exposed to risk in this scenario. As a result, they depend on timely payments to maintain their bottom lines and continue investing in future projects.
Apart from these other challenges, the more recent reforms have provided a further layer of transparency to India’s public procurement process. Government e-Marketplace and Central Public Procurement Portal have brought transparency by making tendering processes more accessible. Further, the online dispute resolution portal has made these processes even easier to understand. These platforms help UK companies get real-time visibility of future public tenders. This ability allows them to better compete with local manufacturers.
India’s new trade agreement with the UK sets a troubling precedent on government procurement. This standard is 24 times higher than India’s last deal with the United Arab Emirates. Through this new deal, products manufactured in the UK will be eligible to be supplied to the Indian government. To qualify, these products need to be made with 20% domestic input. Such flexibility permits UK companies to source parts or raw materials from various locations while still complying with local procurement requirements.
Ajay Srivastava of the Global Trade Research Initiative (GTRI) described a key reversal by the Indian government. Specifically, they’ve reduced the minimum size a foreign company must exceed to bid on a U.S. government project, making it easier for foreign businesses to enter the market. The lingering reality of overdue dues is still a major hurdle. A short survey found a shocking development in India’s central public sector enterprises. Between 2017 and 2020, these enterprises had unpaid invoices that sometimes were more than the whole average contract value for a full year. This massive backlog has left many regular suppliers crying foul and pushed some of their smaller or even medium peers to exit the federal procurement market altogether.
2020 World Bank Doing Business report put India at 163 out of 190 countries on enforcement of contracts. This ranking underscores the deep systemic challenges that both domestic and foreign suppliers face in the country. Against this backdrop, we can only hope that more foreign participation will increase accountability in India’s tendering and procurement processes. As a result, this amendment would bring Congress’ practices more in line with the rest of the world.
The India-UK trade deal encourages transparency and creates additional market access for UK suppliers. Yet, it misses the mark by not incorporating key provisions to address payment arrears, promote contract enforcement and establish penalties. Observers contend that these omissions would potentially negate the anticipated gains from the liberalization of foreign investment into India’s procurement sector.