Commerce ministry proposes 30% local sourcing for foreign suppliers

01 February 2014

The commerce ministry has proposed a 30-per cent mandatory local sourcing obligation on all foreign entities supplying goods valued at over Rs300 crore to the central government or public sector enterprises.

The local sourcing clause should apply to all non-commercial deals with all foreign suppliers across sectors including civil aerospace, power (including nuclear), fertilisers, space, railways and other transportation, shipping, mining, steel, special metals, medical equipment, medicine, telecom and electronics.

The obligation, propose in the draft 'national offset policy', will be applicable only for non-commercial procurement by the government, which is estimated at $100 billion annually.

The draft policy, which specifies the parameters for imposing offset or domestic sourcing obligations on foreign suppliers, also proposes a National Offsets Authority headed by the Cabinet Secretary to monitor the mechanism.

The proposed policy allows cross-sectoral linkages, as the foreign supplier is allowed to fulfil domestic sourcing obligation by sourcing from a different sector. This may benefit a number of sectors, including social sectors such as education, software and infrastructure development.

There is also a negative list for offsets, which include import and export of services and export of agricultural products, mineral and ores.

The proposal is to be vetted by a committee of secretaries headed by the cabinet secretary before it is sent to the cabinet for approval. However, most ministries and departments have supported the proposed policy.

Under the existing offset policy, the local sourcing can be used to attract investments, acquisition of technology, raw material and assets, and improving the balance of payments.

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