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Economy

A Chinese Wrench is Stopping Public Procurement From Supporting Modi's 'Make in India'

'The price offered by Chinese vendors is usually 40-50% lower compared to what local suppliers offer, which renders irrelevant the 20% purchase preference advantage stipulated for the latter under the Make in India scheme.'

New Delhi: It is now going to be four years since the Narendra Modi government launched its ‘Make in India’ initiative, but the scheme is still struggling to make a dent in the country’s high non-oil imports, especially capital goods.

In particular, central public sector enterprises (CPSEs), the Indian railways and state government agencies continue to prefer Chinese goods to locally manufactured products because of the attractive cost differential.

Modi had launched the Make in India scheme in September 2014 amid high expectations that the policy will transform the lacklustre Indian manufacturing.

But now the initial optimism is giving way to realism that weaning these entities off cheaper goods Chinese may not be easy.

Non-oil and non-gold imports during August 2018 are estimated at $29.77 billion, nearly 13% higher compared to the same month last year.The value of electrical and non-electrical machinery import during August was over 46% higher than a year ago.

Electronic imports saw a jump of over 22% during the month, on a year-on-year basis.

Suppliers, who have set up manufacturing facility under the Make in India programme, are entitled to 20% purchase preference in public procurement. That means they will be given contract provided the bid price differential is less than 20% and they are ready to match the offer of the lowest bidder, a foreign vendor.

But despite that, local suppliers are being outbid by Chinese vendors. The reason: price offered by Chinese vendors is usually 40-50% lower compared to what local suppliers offer, which renders irrelevant the 20% purchase preference advantage stipulated for the latter under the ‘Make in India’ scheme, said industry sources.

Five months ago, The Wire has learned, the department for industrial policy and promotion (DIPP) had to nudge various government departments into withdrawing tenders worth Rs 13,000 crore after domestic manufacturers complained of restrictive conditions that favoured foreign players.

Out of all PSUs, the Indian Railways has had a particularly rough time of it. For example, the  national transporter recently floated two tenders for the procurement of automatic track-laying and maintenance machines. In both the cases, the price offered by Chinese bidders is 40%-50% lower compared to what local players quoted.

The railways has not yet awarded contracts but given the huge price differential between the lowest and the second lowest bids, it looks like a foregone conclusion that Chinese vendors will bag both the orders.

Plasser India, a manufacturer of track-laying and maintenance machines is operating in India since 1965. It already has one manufacturing unit in Haryana.

It decided to set up another manufacturing unit in Vadodara with investment of Rs 400 crore to benefit from sops available under the Make in India. The facility is expected to be operational by next March. However, it failed to match up to Chinese competition in two recent tenders.

Siegfried Fink, managing director of Plasser India, wants the government to introduce 50% mandatory localisation to level the playing field for companies that have set up manufacturing facilities here.

Fink told The Wire that he is not against competition but there should be a level playing field.

“The government needs to ensure that local companies and investors are being protected against unfair priced and subsidised imported products so that they can derive viable proposals for Manufacturing in India,” he said.

“The procurement policies must curb unnecessary imports, softly enforce the location of products and therefore provide the grounds for robust manufacturing growth in the country.”

The Indian railways has drawn up ambitious plans to modernise signalling system, improve the maintenance of rail tracks and replace old rolling stock to boost safety and increase speed of trains.

It has budgeted Rs 7,000 crore for investment this year and proposed to increase this amount to Rs 13,000 crore next fiscal.

As the national transporter aims to increase speed of trains, it will have to switch to 100% mechanisation in laying and maintenance of rail tracks, say transportation experts. But for that, the railways will have to procure at least 700-800 rail track maintenance machines to meet its current requirement.

It was lure of this kind of demand that led companies like Plasser India into expanding their manufacturing capacity here. But now their optimism is fading fast as they see the reality.

In March 2018, The Wire was the first to report how a Rs 2,700 crore trainset project of the Railways had to be red-flagged by the DIPP after certain conditions in the tender favoured global players and companies that had experience in supplying to G-8 countries only. The tender eventually had to be re-jigged to comply with the Centre’s Make in India intiative.

House panel too expresses concern over poor implementation

A house panel report, tabled in Rajya Sabha in July, too found that the Make in India’s performance has been dismal.

In its report on the ‘Impact of Chinese goods on Indian industry’, the parliamentary standing committee on commerce noted that the Modi government has failed to ensure that the Centre, state governments and public sector undertakings purchase products manufactured in India and these entities have continued to buy Chinese goods.

The panel, headed by Shiromani Akali Dal Rajya Sabha member Naresh Gujral, recommended that the government give “complete protection to Indian industry against any illegitimate, protectionist and unfair trade practices of any country.”

The committee expressed concern at Chinese bulk drugs, bicycles, toys, steel, solar panels, textiles, firecrackers and other products pushing Indian manufacturers of these goods to the brink.

The panel noted that the public procurement order, issued in June 2017, to promote local manufacturing has not been implemented. Even after a year of the order, the preference for Chinese products by government agencies, PSUs, and state governments has not waned, the panel noted.

The industry players that the panel spoke to said that government tenders and procurement processes have restrictive and discriminatory clauses that hobble local manufacturers and suppliers, while Chinese products do not face such obstacles.

Time for Goyal to walk the talk

As Union power minister Piyush Goyal had last year claimed that he “will not allow” any company to come to India from a country that does not permit an Indian firm to do business there, in a warning that did not name any country but was apparently meant for China, a big exporter of power equipment.

China does not allow foreign players to bid for supply of equipment to its railways, just as in power sector.

“Reciprocity should be there. Is India a punching bag that if you want then you can come and invest in India and earn and Indian companies cannot come and earn in your country. We believe in reciprocity and it is also a display of our strength,” Goyal had said.

Now that Goyal is at the helm of the Indian railways, it remains to be seen if he plans on stopping Chinese vendors in participating for bids for supply of equipment and services to Indian railways in a tit-for-tat response.