FTA: UK firms chase $38bn India contracts but challenges loom

BBC News

4 hours ago

A standout feature of the India-UK free trade agreement signed last month was the Narendra Modi government's decision to open India's vast government procurement market to UK suppliers. This typically includes a range of things the government buys - from goods and services to contracts for public works such as roads. Some 40,000 high-value tenders worth £38bn from federal ministries will now be open to bidding for UK businesses in strategic sectors like transport, green energy and infrastructure - areas which have thus far been heavily protected from foreign competition.The access is unprecedented, trade experts say.It is "far greater" than what India had offered in its earlier agreement with the United Arab Emirates and "sets a new benchmark", Ajay Srivastava of the Global Trade Research Initiative (GTRI), a Delhi-based think-tank, told the BBC.Under the agreement, UK firms bidding for Indian government contracts in specified areas will be treated almost on par with Indian suppliers and also have real-time access to information on forthcoming public tenders and procurement opportunities.Also, goods from the UK made with just 20% domestic input can now be supplied to the Indian government, allowing UK companies the flexibility to source up to 80% of the parts or raw material from other countries and still qualify for procurement preference in India.The minimum contract value at which these firms can bid for government projects has also been sharply reduced as a result of which "UK companies can now bid on a wide range of lower-value projects - such as rural roads, solar equipment for schools, or IT systems for government offices - that were previously out of reach", said Mr Srivastava.
But for British companies, realising this opportunity on the ground will be easier said than done, several experts told the BBC.While UK suppliers are eligible to participate as Class-II local suppliers, Indian companies will continue to get preferential treatment as Class-I suppliers, says Dr Arpita Mukherjee, a trade expert with the Indian Council for Research on International Economic Relations.Moreover, pricing plays a key role in winning contracts, and "UK companies tend to have higher prices" compared with Indian companies, which will be a major challenge for them, she adds.A more significant deterrent will be delayed payments and difficult contract enforcement, which are "major legacy issues when it comes to public procurement in India", says Srijan Shukla of the Observer Research Foundation think-tank.He says a study on procurement by India's central public sector enterprises from 2017 to 2020 found that pending payments to suppliers were often more than the total average procurement in a year."This will impact UK players trying to enter India's public procurement markets, especially when it comes to public contracts that have long-time horizons and are subject to regulatory and political uncertainties," Mr Shukla told the BBC.Pending dues have been a major irritant for India's small businesses too, leading to short-term liquidity issues that often "force them out of these procurement markets and reallocate that business to the big players", according to Mr Shukla.Much of this is reflected in India's poor ranking - 163 out of 190 - on contract enforcement in the World Bank's Doing Business report, the latest round of which was in 2020.While things have improved since these rankings were published - with one-stop-shop portals like Government e-Marketplace, the Central Public Procurement Portal or the recently launched online dispute resolution portal bringing more transparency to the public tendering process - payment discipline by government entities continues to remain a challenge, says Mr Shukla.According to Ms Mukherjee, the India-UK trade agreement emphasises transparency in procurement but omits issues like pending dues, contract enforcement and penalties.She adds the deal excludes the Comprehensive Economic and Trade Agreement's dispute settlement provisions for four years after the CETA takes effect - these provisions usually define how disputes are resolved."Doing business in India is an acquired skill. Over time, companies from the UK will have to learn the way to work around complexities regarding the art of winning public tenders and navigating though complex regulations," Mr Shukla says.
Despite the niggling issues, allowing foreign players entry into India's government procurement market marks a far-reaching policy shift.It shows the Indian government's intentions to open up a space that has long been reserved for local small and medium enterprises, and could be reflective of the concessions Delhi is willing to give foreign players in future trade agreements like the one being negotiated with the US, according to GTRI.India is late to including deep government procurement clauses in trade deals, making its current efforts a catch-up game, says Mr Shukla.It is also a sign, he says, of the Indian government's "confidence that its own firms can compete with global firms both externally and at home". The hope is that more foreign players will force more accountability from the Indian government and "help standardise" its tendering and public procurement process - marked by payment delays and poor contract enforcement - to global standards. Follow BBC News India on Instagram, YouTube, X and Facebook.