[ad_1]
New Delhi: The government has proposed to slash weightage of local value addition of some key components when procuring IT hardware, prompting the industry to push back, saying such a move will render it difficult for many players to participate in state tenders.
Based on inputs from the team looking after the production-linked incentive (PLI) schemes, the government has proposed to reduce the value addition weights on items that are procured locally through the ‘Public Procurement Preference to Make in India’ (PPP-MII) order. This is being done to curb potential over-invoicing cases.
In the revised local value add calculation mechanism for desktops and laptops, the weightage of local value addition for printed circuit board assemblies (PCBA) has been slashed from 45-52% to 5%. Suppliers procuring the bare PCB can add another 5% to the weightage. Similarly, the proposed changes has slashed weightages of other components such as memory, storage, battery, and others.
“Earlier, if we were assembling the motherboard locally, including mounting the processor, the cost of the motherboard and the processor would be counted as local value addition,” an industry executive from a top IT hardware maker told ET.
“We were also procuring the memory, storage, and chassis locally and was able to meet the 50% local content requirement to bid for government tenders,” the executive said, adding that the government has now proposed to change the way local value addition is calculated.
Government procurement under the Preferential Market Access (PMA) policy and large tenders by state-controlled sectors such as education account for around 28-30% of all desktop sales, 55-80% of tablet sales, and 12-14% of notebook sales, as per IDC.
Under the Public Procurement Preference for Make in India (PPP-MII) order, suppliers participating in government procurement tenders are classified into Class I (with 50% local content) and Class II (minimum 20% local content) categories. This local content is calculated as the proportion of total value of the product which was added locally, and not imported.
However, the government has now proposed to change this mechanism to base the calculation on the production-linked incentive (PLI) scheme, “where actual value addition percentages are determined based on the actual weightage of items in the BoM.”
The government has also proposed to introduce a ceiling limit on items listed in the bill of materials (BoM) of a product to encourage authentic value addition, and curb over-invoicing. It has also introduced local value add weightage to products that are designed in India with intellectual property registered in India.
This, the industry said, will make it difficult for them to meet the local value add criteria needed to participate in government tenders.
ET has seen a copy of the proposed changes.
The proposed changes come at a time the government has ramped up procurement of IT hardware in the past six quarters, putting out large tenders to distribute products to constituents and for use in various ministries, department and government-owned organisations, said IDC.
Industry executives ET spoke to, said the revised local value addition calculations effectively gives no advantage to suppliers striving to meet the higher localisation requirements as compared to those only meeting 20% localisation.
“While both Class I and Class II compliant suppliers can bid for tenders, suppliers doing lesser local value add are able to bid at lower prices, and we have to match them despite having higher value add,” another industry executive aware of the developments said.
The executive added that the government is jumping the gun in enforcing stricter local value addition rules in the absence of a mature component ecosystem.
“There are other players in the business who find better ease of doing business in remaining a Class II supplier, ultimately harming the government’s objective to increase localisation,” the executive said.
[ad_2]
Source link