The Indian government, in line with its Make in India initiative, is set to introduce measures in the upcoming budget to increase the use of indigenous content in public procurement. This move aims to promote manufacturing within the country and reduce dependence on imports. The minimum limit for the use of Indigenous content is expected to be raised across most sectors.

Current Classifications of Suppliers

Under the existing framework, suppliers are categorized based on their use of local content:

The government aims to incentivize higher local content usage by increasing the minimum thresholds required for public procurement.

Sectoral Impact and Exemptions

The increased local content requirements will be rolled out in phases and may initially target specific sectors, such as:

• Steel
• Chemicals
• Pharmaceuticals
• Automobiles
• Consumer Goods

However, certain sectors critical to national interests, such as defense production, electronics and IT, telecommunications, mines, railways, power, ports, ships, and waterways, might be exempted from these new regulations. The list of exemptions is still under finalization.

Economic Implications

This initiative comes at a time when private sector investment in India is at a 20-year low. The Bank of Baroda has reported that new investments announced by the private sector in the June quarter of FY 2025 amounted to only ₹44,300 crore.

Foreign Direct Investment (FDI) Impact

The increased requirement for local content is also expected to attract more foreign direct investment (FDI). Foreign companies, in a bid to meet the local content norms and tap into the lucrative government procurement market, will be encouraged to set up their bases in India.

However, the United Nations Conference on Trade and Development has indicated that while global FDI inflows are expected to fall by only 2% in 2023, India’s FDI inflows are projected to decline by a significant 43%, reaching $28 billion.

Government’s Perspective

P K Singh, CEO of Government e-Marketplace, commented, “This move will provide a significant boost to the Make in India initiative.”

The government’s push for increased local content in public procurement is seen as a strategic move to bolster domestic manufacturing, drive economic growth, and enhance India’s self-reliance. As the proposal nears finalization, the business community awaits detailed announcements in the upcoming budget.