1. BACKGROUND
1.1 The Make in India initiative started in the year 2014 aimed to establish India as a global manufacturing hub, fostering self-sufficiency and competitiveness. It encourages suppliers to the Government to have adequate local content, promoting local manufacturing and sourcing of goods/services by the Indian Government. Further it was aimed to encourage local manufacturing, including incentivizing foreign companies to establish manufacturing units in India.
1.2 The Department of Industrial Policy & Promotion (“DIPP”) of the Ministry of Commerce and Industry issued the Public Procurement (Preference to Make in India), 2017 (subsequently modified by revision orders dated 4th June 2020,16th September 2020 and 19th July 2024) (hereinafter referred as the “General Order”) to encourage Indian and global companies to increase the development, production, manufacturing, and assembly of products made in India with a view to enhancing income and employment.
1.3 Accordingly, the Ministry of Communications- Department of Telecommunications (“DOT”), governs the technology and infrastructure of the telecom sector that facilitates communication across the country. The Telecom Sector is broadly divided into the following sub-sectors, viz. (i) Infrastructure, (ii) Equipment, (iii) Mobile Virtual Network Operators, (iv) White Space Spectrum, (v) 5G, (vi) Telephone service providers and broadband.
1.4 DOT has issued a separate notification dated 29th August 2018 of a list of telecom products, services, and works for their purchase preference from local suppliers for public procurement vide notification dated 29th August 2018 (“DOT Specific Order”). The General Order and the DOT Specific Order combined govern purchase preference in the Telecom Sector. Ministry-specific orders and tender requirements take precedence over the General Order. The General Order and the DOT Specific Order requires products to be fully manufactured in India and mandates local suppliers to manufacture equipment from the component level in India and develop local vendor networks for raw materials, components, and parts.
1.5 This article gives an overview of the Make in India policy of the government concerning the Telecom Sector.
2. HIGHLIGHTS OF MAKE IN INDIA
2.1 Categorisation of Supplier. Suppliers or service providers are categorized under the General Order based on Local Content as follows –
(i) Class-I LS: Local Content ≥ 50%,
(ii) Class-II LS: Local Content ≥ 20% but < 50%,
(iii) Non-Local Supplier: Local Content < 20%.
2.2 Eligibility for bidding.
Per the General Order, bidding eligibility hinges on local capacity and competition. Under Clause 3(a) of the General Order, if sufficient local capacity and competition for particular goods or services is communicated by specific Ministry/Department, only Class-I LS is eligible to bid irrespective of the purchase value.
In pursuance of Clause 3(a) of the General Order, the DOT has issued the DOT Specific Order which provides a list of products that have sufficient local capacity and provide for percentage of minimum local content(MLC) against each item. In this sense, for the Telecom products that are included in the DOT Specific Order, the local content requirements as given in the DOT specific Order shall be adhered to. Furthermore, the DOT Specific Order also provides for a “Preference to Make in India” index(PMI) which provides that for a certain percentage (as indicated against each item) the government authority is bound to purchase from local suppliers having MLC.
For other telecom products and services which are not mentioned in the DOT Specific Order as having sufficient local capacity, Class-II Local Suppliers or Non Local Suppliers are eligible to bid depending upon the requirements of the tender. However, Class-I will get preference over Class-II Local Suppliers or Non-Local Suppliers.
2.3 Local content
(i) Meaning of Local Content and its components
Under the General Order, Local Content is defined as the amount of value added in India which shall, unless otherwise specified by the Nodal Ministry, be the total value of the item procured (excluding net domestic indirect taxes) minus the value of imported content in the item (including all customs duties) as a proportion of the total value, in percent.
The following are excluded from the calculation of local content-(a) imported items sourced from resellers and distributors, (b) license fees/royalties paid/technical charges paid out of India, (c) repackaged, refurbished and rebranded products, (d) transportation, insurance, installation, commissioning, training, and after-sales support like AMC/CMC
Cost for Assembly/Integration/Testing as local content-When assembling, integrating or testing a final product,10% of its cost can be counted as “local content,” but if only a system or a sub-system of a product is being assembled/integrated/tested, 10% of the system/sub-system’s cost can be calculated as a local content.
Design as local content-The DOT Specific Order also mentions that the design (comprising hardware design and software design and development) of a Telecom product can also become a component while calculating the local content on the following two conditions: (a) Intellectual Property Right resides in India for Hardware Design, (b) The copyright is in India for the Software Design and Development.
(ii) Calculation of Local Content
Local content = (Sale price – Value of imported content) * 100/ Sale price
Where –
(a) “Sale price” means the price of the item minus net domestic indirect taxes (for instance – excise duty, goods, and service tax, etc.); and
(b) “Value of imported content” means the price of imported content including all customs duties.
Further, please note that the above formula is a basic formula provided in the General Order and practically it has been observed that each tender would specify their respective formulas to be used towards the calculation of Local Content.
(iii) Verification of Local Content
With reference to the verification of the percentage of Local Content, a self-certification for any procurement below INR 10 Crores and a certificate from the statutory auditor or cost accounting indicating the percentage of Local Content for any procurement above INR 10 Crores is required to be submitted by the bidder. The tenders can provide for different requirements for a certification. Practically, it has been observed that local content certification is an ongoing process and the percentage of the local content can be required to be certified even after acceptance of the bid and during the supply of services.
3. CONCLUSION
In summary, the Make in India initiative, launched in 2014, aims to boost India’s manufacturing prowess. The policy prohibits direct imports to promote domestic manufacturing and encourages local vendor development.
–Kinjal Champaneria, Partner and Tanvi Doshi, Associate, Solomon & Co.
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