The Union Cabinet on Wednesday approved a policy providing preference to domestically manufactured goods for government procurements, in a major step to boost the government’s Make in India initiative. It also approved the abolition of the Foreign Investment Promotion Board (FIPB), which has, for 25 years, been the single-point window for clearing foreign direct investment (FDI) proposals requiring government nod.
The Cabinet, headed by Prime Minister Narendra Modi, also gave its nod to a “strategic partnership” model under which select private firms would be engaged to build military platforms like fighter jets, submarines and battle tanks. The Cabinet Committee on Economic Affairs (CCEA), which met before the Cabinet, approved the closure of Janpath hotel in the national capital. The property will be used for setting up government offices. It also cleared the hike in fair price for sugarcane by Rs 25 a quintal, a move that will benefit about five crore farmers across cane-producing states.
The new procurement policy mandates that only local suppliers will be eligible for procurement of goods and services above Rs 5 lakh, provided that the specific ministry determines that there is sufficient local capacity as well as competition. The policy also has provisions for procurements beyond Rs 50 lakh, or where there is insufficient local capacity or competition. In this case, if the lowest bid is not from a foreign supplier, the lowest-cost local supplier, who is within a margin of 20 per cent of the lowest bid, will be given opportunity to match the lowest bid. Further, if the procurement is of a type which can be divided between more than one supplier, the foreign supplier who is the lowest bidder will get half of the order, while the local supplier will get the other half if it agrees to match the price of the lowest bid.
In the cases where it cannot be divided, the lowest-cost local supplier will be given the order if it agrees to match the lowest bid. The policy, to be overseen by a standing committee within the Department of Industrial Policy and Promotion (DIPP), warns of penal consequences if a supplier falsely declares himself to be a local one. Small purchases of less than Rs 5 lakh are exempted. The order also covers autonomous bodies, government companies or entities under the government’s control, including the armed and paramilitary forces.
While industry insiders said the policy may be construed as protectionist, it may not invite the ire of international trade bodies such as the World Trade Organization anytime soon. “Those risks are minimal since many countries, including the United States, are now putting in place such norms,” said DK Srivastav, economist and chief policy advisor at EY India. “There is now a very large global wave in favour of inward looking policies,” he added.
On FIPB, Finance Minister Arun Jaitley said the body would be replaced by a new mechanism under which the proposals would be approved by the ministries concerned. He said that proposals in sensitive sectors would require the home ministry’s approval. “About 91-95 per cent of all FDI proposals are now through the automatic route. There are just eleven sectors left which needed FIPB approval,” he said at a media briefing.
The respective administrative ministries would now clear proposals in these sectors in consultation with the DIPP, said an official release. The DIPP would also issue the standard operating procedure (SOP) for processing of applications and decision of the government under the extant FDI policy, it said.
A senior government official told Business Standard after the cabinet meeting, that the finance ministry would take four to six weeks to wind up operations of the FIPB. “There will be no more FIPB meetings. It will take four to six weeks to end the FIPB. The DIPP will also take around the same time to come up with new guidelines,” the official said.
Graph The FDI proposals above Rs 5,000 crore would continue to be cleared by the CCEA. Meanwhile, the official ‘Make in India’ twitter handle said there would be a quarterly review by the secretaries of either the DIPP or the finance ministry’s department of economic affairs of pending proposals. It also tweeted that proposals from Pakistan, Bangladesh and those related to small arms manufacturing and private security firms would require the home ministry’s approval.
“The momentous initiative, which is a follow-up of the measure announced in the Union Budget, would streamline the process of FDI approvals and thereby boost FDI flows into the country, adding to growth and employment,” said Chandrajit Banerjee, director general, Confederation of Indian Industries (CII).
The fair and remunerative price (FRP), which is the minimum price sugar mills have to pay to farmers, has been increased from Rs 230 a quintal to Rs 255 for the 2017-18 season that kicks in from October. The hike, approved by the CCEA, is the first this year.
The decision to close Janpath hotel, located in the heart of Delhi and run by the India Tourism Development Corporation (ITDC), has been taken within a month of the Centre deciding to exit three ITDC hotels at Bhopal, Guwahati and Bharatpur. The committee of secretaries, under the cabinet secretary, will take a decision on details of implementation of the project and land use.
“The building of Hotel Janpath has to undergo major rehabilitation work since the building structure of Hotel Janpath has been found to be unserviceable, in distressed condition and deficit in the context of seismic requirements, according to the inspection report of IIT Roorkee,” said an official statement.
The new defence partnership policy is expected to attract billions of dollars of investment in defence manufacturing by private defence majors, including leading foreign firms. After the Cabinet meeting, Jaitley, who is also the defence minister, said the government wanted to implement at the earliest the new model which was aimed at production of major defence platforms and equipment by Indian companies in collaboration with leading foreign firms.
Jaitley said the strategic partnership model was part of the Defence Procurement Policy (DPP) and the Cabinet was apprised about it.