In an attempt to provide more preference to domestic manufacturers in government procurement, the Steel Ministry has introduced a notification which mandates imported steel to undergo a higher domestic value addition in making of a product to be eligible for purchase by government departments and all its entities, including state-run firms.
And unlike previously, where the minimum value addition criteria kicked in for project purchases of Rs 50 crore and above, the new rules of May 29, 2019, have lowered the threshold to purchases of Rs 25 crore or more.
Moreover, these provisions would also kick in for government agencies whose annual procurement of iron and steel products for various projects is Rs 25 crore or more. The May 2019 notification on Policy for Providing Preference to Domestically Manufactured Iron & Steel Products (DMI&SP) in Government Procurement also expands the list of manufactured products to 49 from previous 11 items.
While earlier the domestic content was limited to 15 per cent on all 11 products, the new list of 49 products have minimum prescribed value addition ranging between 15 to 50 per cent making it difficult for imported steel to compete with domestic bidders for government contracts.
For iron and steel products, “manufacturers/suppliers not meeting the domestic value addition targets are not eligible to participate in the bidding”. Value addition is the difference between the net selling price and the landed cost of imported input steel at a manufacturing plant in the country. The May 2019 notification also brings into the DMI&SP ambit a list of 13 capital goods which are used for manufacturing iron and steel products with minimum domestic value addition requirement of 50 per cent.
In such EPC contracts, purchase preference would be provided to domestic bidders if their quoted price falls within 20 per cent of the price quoted for the corresponding imported capital good. The domestic bidder would then have to match the price quoted by the lowest bidder and bag the contract.