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Is Public Procurement helping UP increase manufacturing base?

Updated: Aug 30, 2018 11:18:15am
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Is Public Procurement helping UP increase manufacturing base?

Lucknow, Aug 30 (KNN) In eighteen months since Yogi Adityanath became Uttar Pradesh Chief Minister, the state’s ranking improved to 12 among all states in DIPP’s Ease of Doing Business Ranking of states in India.

The ranking, according to DIPP, is entirely based on feedback from the industry. KNN India spoke to industrialists in UP and learnt that the business environment in the state has become far more conducive than what it was earlier. In fact Uttar Pradesh is among the top five states that have shown maximum improvement.

Industrial Scenario

To attract investment and boost local industries, Yogi Government has come up with several schemes like One District One Product (ODOP) scheme, a comprehensive skill development policy and more.

There is no doubt that the top companies like Samsung, LG, TCS have heavily invested or have plans to invest more in the state.

But, the question that arises is that are these measures giving any push to Uttar Pradesh’s local manufacturing industries? Is call for Make in UP doing enough to boost the existing manufacturing sector of the state?

Public Procurement not in sync with local manufacturing

Dinesh Singhal, a renowned industrialist from Meerut said, “The overall ease of doing business environment is undoubtedly improving in Uttar Pradesh. This ease is being experienced in all the departments. But if we talk about Public Procurement, there are concerns that what is being done is not enough to boost local manufacturing industry.”

On this, VK Aggarwal, an entrepreneur from Lucknow and also past president of IIA & FISME, said, “There is definitely lack of industries in UP if we compare it to its size. The backwardness of the state can be linked to the backwardness of industries which in a way is linked to insufficient public procurement.”

Make in India Vs Make in UP

In a letter to State Industries Department, industry body IIA has suggested that any orders placed by Uttar Pradesh Government to a local industry and industry outside the state can help UP bail or lose substantial money.

Sunil Vaish, IIA President wrote to Santosh Kumar Yadav, Executive Director of Udyog Bandhu, Uttar Pradesh. “…Yogi Adityanath, Chief Minister of Uttar Pradesh, has announced his intentions to launch “Make in UP” from time to time…this makes eminent sense as U.P. trails most Western and Southern States of the country in terms of industrial development. The same rationale applies to “Make in U.P” as to “Make in India” viz.”

The letter highlighted that “Whereas it is the policy of the Government of India to encourage 'Make in India' and promote manufacturing and production of goods and services in India with a view to enhancing income and employment, and Whereas procurement by the Government is substantial in amount and can contribute towards this policy objective, and Whereas local content can be increased through partnerships, cooperation with local companies, establishing production units in India or Joint Ventures (JV) with Indian suppliers, increasing the participation of local employees in services and training them.

It is the considered view of us that PSUs and Government Departments in UP may be asked to include similar clauses in their tenders.”

IIA suggested that, “As this whole process is likely to take considerable time, an advisory may kindly be issued forthwith to the State PSUs and Government Departments to invite state based units to match the prices of L1 (if from outside the state unit) in order to be eligible to get upto 50% of the quantity tendered. We are sure this step will result in multiplicity of benefits – a) help the existing state units to perform better, b) attract new units and investment to the State from elsewhere and finally c) bring in more revenue for the State in form of SGST of 9% which would not accrue to the State in case the material is purchased from outside the state.”

SGST, CGST & IGST

Explaining this in details, VK Aggarwal said, “If any agency of UP Government places an order with a unit in Uttar Pradesh, that unit will charge 9 per cent CGST and 9% SGST (considering that most of the products are in 18% GST slab). The SGST which is the State Goods & Services Tax will go in the coffers of the UP Government.

However, if the order is placed with a unit outside GST, that unit will charge 18% IGST which the state government is completely losing on.

Aggarwal said suppose if UP Government is procuring goods worth Rs 1 Lakh crore, then 9% of this amount will come to state government.

The industrialist opined that since UP is one of the lowest in terms of prosperity and growth, it has to focus on Make in UP more than any other state does a similar thing for itself.

He said, since Make in India is as appropriate for UP as for India given the size of the state, UP should adopt the points from this policy as it is as they have already been vetted through law and are already applied and are yielding results.

Make In India

   --- The policy states that - In the procurements of goods which are divisible in nature - Among all qualified bids, the lowest bid will be termed as L1. If L1 is from a local supplier, the contract for full quantity will be awarded to L1.

   --- If L1 bid is not from a local supplier, 50% of the order quantity shall be awarded to L1.

   --- Thereafter, the lowest bidder among the local suppliers, will be invited to match the L1price for the remaining 50% quantity subject to the local supplier's quoted price falling within the margin of purchase preference, and contract for that quantity shall be awarded to such local supplier subject to matching the L1price. In case such lowest eligible local supplier fails to match the L1price or accepts less than the offered quantity, the next higher local supplier within the margin of purchase preference shall be invited to match the L1 price for remaining quantity and so on, and contract shall be awarded accordingly. In case some quantity is still left uncovered on local suppliers, then such balance quantity may also be ordered on the L1 bidder.

Commenting on how Make in India policy will help if adopted in Make in UP, Aggarwal said it is a very fair order because it does not take of any cost preference which would cost extra money to the government. It is designed in such a way that neither there is any extra expense for the government not it leads to a situation where global competition stops. This provision is so unbiased that both – the local as well as overseas company – benefits. It is even compatible to WTO.

Aggarwal said the base of industry in UP is very small and thus there is a dire need to promote Make in UP and thus public procurement. Departments such as Power, Irrigation Construction, Infrastructure, Housing, and Agriculture can help in this endeavor.

Revamping Bidding Process

Industrialists from UP have time and again raised issues related to unfair tender bidding processes or tweaked clauses in tender documents.

On this, Aggarwal said, “Contracts and Tenders under public procurement are outdated or rather feudalistic and need overhauling in context of terms and conditions.

“Many contracts are designed in such a way that only a select few can participate. They do so by either enlarging the tender size or increasing the turnover criteria,” he added.

Make in India, however, clearly specifies that Procuring entities shall endeavour to see that eligibility conditions, including on matters like turnover, production capability and financial strength do not result in unreasonable exclusion of local suppliers who would otherwise be eligible, beyond what is essential for ensuring quality or creditworthiness of the supplier.

Since Uttar Pradesh to a large extend reflects the picture of entire India, experts opine that Make in UP if in line with Make in India will help local manufacturing.

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