Govt exempts procurement of spare parts from OEMs from public procurement policy

The government’s public procurement policy announced in mid-May, which prohibited global tendering to source goods and services up to ₹200 crore in order to promote domestic industries, is not applicable for procurement of spare parts from original equipment manufacturers, two officials said.

The clarification was issued on October 29 after several government concerns and public sector companies—particularly in energy, telecom, health and infrastructure sectors—faced difficulties in sourcing specific components domestically as they are available only with the original equipment manufacturers (OEMs) that are often foreign entities, the officials working for two economic ministries said requesting anonymity.

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The finance ministry on May 15 disallowed global firms from participating in government tenders worth up to ₹200 crore, a move in line with the ₹20 lakh crore AatmaNirbhar Bharat Abhiyan (Self-Reliant India) economic stimulus and relief package. “Now, no Global Tender Enquiry (GTE) shall be invited for tenders up to ₹200 crore, unless prior approval is obtained from Cabinet Secretariat,” the May 15 statement said. The move was aimed to benefit domestic micro, small and medium enterprises (MSMEs).

Referring to the October 29 decision, a second official said, “The office memorandum dated May 15, 2020 will not be applicable on procurement of spare parts of the equipment, plant and machinery etc on nomination basis from original equipment manufacturer (OEM) or original parts manufacturer (OPM) as no competitive tenders are invited in such cases.”

Divakar Vijayasarathy, founder and managing partner at consulting firm DVS Advisors LLP, said the government’s decision is prudent as it allows procurement of spare parts from foreign OEMs because there are no other sources of supply. “Since the equipment/machinery would have been procured from foreign OEMs, much before the introduction of restriction of global tendering, the spares inevitably have to be purchased from the same supplier,” he said.

Sanjay Aggarwal, the president of PHD Chamber of Commerce and Industry (PHDCCI) said the public procurement rule prohibiting global tendering to source goods and services up to ₹200 crore was aimed to ensure that local businesses, especially MSMEs, do not face unfair competition from large foreign companies.

“The provision is to build trust and confidence among the local enterprises to enhance their production possibilities with increased participation in the economic activities of the country. At this juncture, the exceptions made on procurement of spares from original equipment manufacturers (OEMs) is justifiable as minimal or no other source /supplier is available in such cases in India,” he said.

“I am very much sure that the intention of the government is to give first preference to the domestic MSMEs, and therefore, the exceptions made in the said order do not have any negative impact on the confidence level of MSMEs in the country,” he added.