10312014Headline:

Guidelines for providing Preference to Domestically Manufactured Electronic Products in Government Procurement

PROCUREMENT

I. Background

1.1 The Government has notified the policy for providing preference to domestically manufactured electronic products in procurement due to security considerations and in Government procurement vide Notification No.8(78)!2010IPHW dated 10.2.2012 (hereinafter called the Policy) . Clause 8 of the said Policy states that detailed guidelines for operationalizing the policy would be issued after the policy is notified.

1.2 As per Clause 2.2.2, the policy is applicable to Government procurement.

whereby the policy will he applicable to all Ministries/Departments (except Defence) and their agencies for electronic products purchased for Governmental purposes and not with a view to commercial resale or with a view to use in the production of goods for commercial sale. In furtherance of the Policy notified through the reference cited above, the following guidelines are issued for procurement of notified electronic products by Government.

2. Definitions

(i) “Bill of Material”: Bill of Material (BOM) for the purposes of the Policy will be sum of costs of all inputs which go into the product (‘Including duties and taxes levied on procurement of inputs except those for which credit / set-off can be taken) including parts, sub-parts, components, assemblies, manufacturing costs including cost of design and development/ assembling testing/ sourcing/ power finance logistics insurance done in-house, and/or by external Electronic Manufacturing Service provider royalties and licensee fee for IPR. and/or in-house R&D costs incurred/amortized to create IPR resident in India, embedded and other software integral to the device. Packing material. brochures and user manuals which are integral to the device shall also be considered as part of BOM.

The “profit after tax” and warranty cost of the manufacturer is not part of the BOM. Similarly Sales and Marketing expenses including distribution charges, dealer commission, Branding and promotion are also not part of the BOM.

(ii) “Ex-factory price” is the price declared by the manufacturer of the electronic product. All duties and taxes levied on the electronic product shall not be part of ex-factory price.

(iii) “Bill of Material sourced from domestic manufacturers”: BOM sourced from domestic manufacturers would be the sum of the costs of all inputs which go into the product (including duties and taxes levied on procurement of inputs except those for which credit / set-off can be taken) and which have not been imported. An imported material or service including royalty, IPR/technical fees, which is sold by a domestic trader or intermediary shall not be considered as a domestically sourced BOM.

(iv) Department of Electronics and Information Technology”: Department of Electronics and Information Technology (Deity) means the Department of Electronics and Information Technology, formerly called Department of Information Technology (DIT), Ministry of Communications and Information Technology, Government of India.

(v) “Department of Telecommunications”: Department of Telecommunications (DOT) means the Department of Telecommunications Ministry of Communications and Information Technology, Government of India.

(vi) “Domestically Manufactured Electronic Products (DMEP)”: Domestically Manufactured Electronic Products are those electronic products which are manufactured by entities that are registered and established in India, including in Special Economic Zones (SEZs) and engaged in manufacture of such electronic products in India and would include OEM and their Contract Manufacturers, but not traders. In addition. such products shall meet the criteria of domestic value-addition as laid down in the Policy, for being classified as DMEP.

(vii) “‘Domestic Manufacturer”: Domestic Manufacturer is a manufacturer of domestically manufactured electronic products (DMEP)

(viii) “Generic Products”: Generic Products in the context of this Policy are common electronic products which are extensively used across all sectors of economy and notified as such by DeitY or DOT.

(ix) “Government”: Government for the purpose of the Policy means Government of India.

(x) “Government agencies: Government agencies are Constitutional bodies, Government PSUs, Societies, Trusts and Statutory bodies set up by the Government.

(xi) Inputs to an electronic products include parts. sub-parts. components, assemblies, manufacturing costs including cost of design and development/ assembling/ testing sourcing/ power /finance /logistics/ insurance done in-house and/or by external Electronic Manufacturing Service provider, royalties and licensee fee for IPR, and/or in-house R&D costs incurred/amortized to create IPR embedded and other software integral to the specific product.

(xii) “Managed Service Provider (MSP) for Government”: A Managed Service Provider (MSP) for Government is a provider of Information Technology CIT) and Communication related services, who provides such services to Government by establishing Information Technology (IT) / Communication infrastructure or by using the infrastructure created by others, and includes a System Integrator and Equipment Vendor, providing such services.

(xiii) Notification: Notification is an order issued under the Policy and Guidelines issued there under which specifies the preference to be provided to DMEP.

(xiv) “Policy”: The policy notified by Deity vide Reference No.8(78) 2010-IPHW dated 10.2.2012.

(xv) Procurement of Electronic Products..: Procurement of electronic products in the context of the Policy includes both direct procurement of electronic hardware as well as services of electronic hardware procured by Government from Managed Service Providers.

(xvi) ..Profit after Tax” would mean the net profit earned by the company after deducting all expenses like interest depreciation and income tax.

(xvii) “Verticals”: Verticals in the context of electronic products are the entire line of products used in various segments of Electronic Hardware sector, and inter-alia include Telecom; Mobile and hand held devl”ces; Broadcasting; IT and Office Automation; Consumer electronics and Mass communication products; Automotive electronics; Industrial electronics; Electronic Test, Measuring and Analytical Instruments; LED products; Smart cards; Radio-frequency identification (RFID); Avionics; Strategic Electronics including Defense. Space and Atomic Energy; Medical electronics; Solar photovoltaics; power electronics. Segments are broad categorization of electronic products and verticals are more specific products line of products under that segment. For example. in the Consumer electronics segment.

products such as Televisions, Radios, DVD players, Music systems, etc~ constitute the verticals.

(xviii) “Year 1″:Year 1 in the context of this Policy means Financial Year (FY) in which the relevant notification providing for preference for a given electronic product comes into effect, The FY will be the year beginning on the 1 April and ending on the 31March of the succeeding year, However. if a product is notified on or after Isl September of an year, the year `1` would extend to 3 Isl March of the succeeding FY.

3. Notifying electronic products procured by Government

3.1 Each Ministry/Department shall identify the electronic products, under various verticals of electronic sector, which that Ministry/Department procure for Page 4 of 20Governmental purposes and not with a view to commercial resale or with a view to use in the production of goods for commercial sale.

3.1.1 The following guidelines may be used for identifying and notifying the electronic products under each vertical. under the Policy:

a. The objective of the Policy is to eventually notify all electronic products which are procured by Government and Government agencies for Governmental purposes and not with a view to commercial resale or with a view to use in the production of products for commercial sale. Electronic products that are used as subsystems in a larger system/project procured by Government or Government Agency shall also be covered by the Policy, A ..sub-system” is a part of a larger system/project, For example, control system of a power plant may constitute such a sub-system, The policy shall also be applicable to situations where the DMEPs notified under the policy are procured as part of the sub-system. In such cases the preference to DMEPs would be applicable only for the value of notified DMEPs forming part of the sub-system project and not on the value of whole subsystem/project.

b, An analysis of the domestic manufacturing base needs to precede the identification of an electronic product for notification under the Policy. Only those electronic products in respect of which at least one domestic manufacturer exists, Shall bc notified. Consultation with industry, as necessary, may be carried out.

c. The configuration specifications representative of the entire range of a product should be categorized in a single notification after taking into account the functionality/ features/ product complexity. For example, there may be a separate notification for Desktop PC s, Servers and Tablets. but all Desktop PC s, with different configurations, may be clubbed under a single notification.

d. Since identification of all electronic products cannot be taken up simultaneously~ the products having high value of procurement in Government and Government agencies may be identified for notification on priority.

Page 5 of 20e. Departments shall publish their prospective amlual demand for Government procurement of electronic products over the next 5 years. with the objective of encouraging development/investment in manufacturing of such products. Such projections should be based on well considered and approved plans. l`o the extent possible, the Departments should also include an analysis of their total procurement too identify the electronic products having high value of procurement vs. the entire portfolio.

3.2 Each Ministry Department shall notify those electronic products for which preference will be provided in procurement to the DMEP as per the Policy.

3.2~1 Each such “Notification” will specify the date from which the said preference will come into effect.

3.3 While notifying electronic products under clause 3.2.1 above. the Ministry/Department shall

a, state the technical specifications. as necessary. to describe the electronic products;

b, specify. percentage of total procurement in value terms. for which preference is provided to DMEP. in terms of clause 2.2.3 of the Policy;

c. specify product wise, as well as year-wise. the quantum of domestic value addition which qualifies the electronic product to be DMEP, in terms of clause 2.3 of the Policy;

Provided that the domestic value-addition so prescribed shall not bc below the threshold prescribed under the Policy.

Provided further that the value addition required for inputs of the product to be classified as domestically manufactured Bill of Material may also be specified.

Provided further that, “Year 1.` as mentioned in Table of the Policy under clause 2.3.

shall be reckoned from the date from which the relevant notification providing for preference for a given electronic product comes into effect.

3.3.1 The percentage of total procurement value for which preference to DMEP is to be provided under clause 3.3 (b) may be based on following guidelines: a. The minimum percentage of domestic procurement for any electronic product notified is 30%.

b. The percentage of total procurement value for which preference is provided to DMEP should be so fixed that competition is maximized while at the same time domestic manufacturing is encouraged.

c. The decision should be taken after an analysis of the domestic manufacturing base including the al ailable production capacities with the indigenous manufacturers and their number as well as that of their suppliers of inputs. which should inter-aha meet the value addition norms proposed to be notified

d. This would also depend on the availability of multiple domestic manufacturing units with sufficient capacities, so that the requirement of Government Ministries Departments and Government agencies can be fulfilled without compromising on timelines and quality. The after-sales service support network of domestic manufacturer/s also needs to be factored in. However, if there is only one domestic manufacturer. the percentage of procurement for which preference to DMEPis provided should normally be 30%.

e. The percentage of procurement, especially for items being procured in small numbers, with generally high value, may be decided upon practical feasibilities.

3.4 The Department of Electronics and Information Technology (DeitY) would notify generic products, an indicative list of which is at Annexure 1.

3.5 The Department of Telecommunications (DOT) would notifygeneric products relating to Telecom and Networks, an indicative list of which is at Annexure 2.

Provided that Ministry of Railways may specify products relating to telecom and neetworks for use in the Railways.

3.6 The provisions of Clause 3 are applicable to all Ministries/Departments and agencies under their control but shall not be applicable to Ministry of Defence.

3.7 No notification under the Policy shall have retrospective effect.

4. Prescribing Value-addition of electronic products

4, I A technical committee may be constituted by the concerned Ministry/ Department to make recommendations on the domestic I alue addition. The following guidelines may be kept in view:

4.1. I Identify main inputs for the product to be notified and ascertain the percentage of contribution of each input to the Bill of Material (HOM). The granularity at which the inputs need to be identified Ci.e. the number of inputs) should not be large and should be based on industry practices.

4.1.2 DeitY would separately publish from time to time the inputs that commonly go into electronic products and value addition therein that would be accepted for such input to be classified as domestic BOM.

4.2 Ascertain status of domestic manufacturing of each of the inputs identified in clause 4.1.1 above. Wherever~ the input is already included in the list published by Deity referred to in clause 4.1 .2~ the norms in value addition specified therein would be adopted. For all other inputs the Committee may ascertain and prescribe what would entitle the input to be classified as domestic. The effort should be to progressively increase the domestic value-addition of each of the inputs to the electronic product.

4.3 The value-addition norm should be so calibrated that it reflects the average/slightly above average manufacturing capability of the domestic industry for that electronic product at a point of time, This should be suitably increased as per the Policy or faster, depending on the depth in manufacturing achieved for the electronic product.

5. Tender procedure for procurement by Government and Government

Agencies

5. I The procuring agencies, whether Government Ministries/Departments or other government agencies, shall follow standard procurement procedures, in accordance with instructions of Ministry of Finance and CVC, while providing preference to DMEP.

5,2 The tender document for procuring notified electronic products should explicitly specify the modalities through which the preference for DMEP shall be operated’ The details, apart from usual tender conditions, should specify the following: a, The electronic products for which preference will be provided to domestic manufacturers.

b. Total quantity of procurement and the quantity of procurement for which the prrference will be provided to domestic manufacturers.

c. Percentage of domestic value addition which qualifies the electronic product to be classified as domestically manufactured.

d, The procedure for certification and assessment of the percentage of domestic value-addition in an electronic product.

e, The preference to DMEP shall be subject to meeting technical specifications and matching the L I price.

f. The procedure for awarding the contract to DMEP and the treatment of the quantity earmarked for domestic manufacturer if no domestic manufacturer is available. in accordance with the clause 4.2.2 of the policy.

5.3 For each electronic product proposed to be procured, among all technically qualified bids, the lowest quoted price will be termed as LI and the rest of the bids shall be ranked in ascending order of price quoted, as L2 L3 L4 and so on. If LI bid is of a domestic manufacturer, the said bidder will be awarded full value of the order.

If LI bid is not from a domestic manufacturer, the value of the order awarded to L I bidder will be the balance of procurement value after reserving specified percentage of the total value of the order for the eligible domestic manufacturer. Thereafter the lowest bidder among the domestic manufacturers, whether L2. L3. L4 or higher. will be invited to match the L I bid in order to secure the procurement value of the order earmarked for the domestic manufacturer. In case first eligible bidder (i.e. domestic manufacturer ) fails to match L I bid, the bidder ( i.e. domestic manufacturer) with next higher bid will be invited to match L I bid and so on. However, the procuring agency may choose to divide the order amongst more than one successful bidder as long as all such bidders match L I and the criteria for allocating the tender quantity amongst a number of successful bidders is clearly articulated in the tender document itself. In case all eligible domestic manufacturers fail to match the L I bid. the actual bidder holding L I bid will secure the order for full procurement value. Only those domestic manufacturers whose bids are within 20% of the L I bid would be allowed an opportunity to match the LI bid.

5.4 The tender conditions would ensure that domestically manufactured electronic products are encouraged and are not subjected to restrictive product specifications or mandatory requirement of prior experience. The procuring agency may also rationally identify and evaluate predatory pricing by any bidder. However procuring Department or Agency may incorporate such stipulations as may be considered necessary to satisfy themselves of the security. production capability and product quality of the domestic manufacturer.

5,5 The policy for providing preference to domestically manufactured electronic products shall also be applicable to the DMEPs covered in turnkey/ systemPage I O of 20integration projects, which have been notified under the policy. In such cases the preference to DMEPs would be applicable only for the value of notified DMEPs forming part of the turnkey/ system-integration projects and not on the value of whole project. It shall be mandatory on the part of the bidders in the tender to quote separately for the notified DMEPs forming part of the turnkey/ system-integration projects.

5.6 Directorate General of Supplies and Disposals (DGS&D) and National Informatics Centre Services Inc. (NICSI) shall ensure compliance to the Policy / Notifications issued thereunder in their procurements / rate contracts in respect of the DMEPs.

6. Value addition

6.1 Bill of Material sourced from domestic manufacturers (Dom-BOM) may be calculated based on one of the following depending on data available, Each of these calculations should provide consistent result.

a, sum of the costs of all inputs which go into the product (including duties and taxes levied on procurement of inputs except those for which credit / set-off can be taken) and which have not been imported directly or through a domestic trader or an intermediary.

b, Ex-Factory Price of product minus profit after tax minus sum of imported Bill of Material used (directly or indirectly) as inputs in producing the product (including duties and taxes levied on procurement of inputs except those for which credit / setoff can be taken) minus warranty costs.

c, Market price minus post-production freight, insurance and other handling costs minus profit after tax minus warranty costs minus sum of Imported Bill of Material used as inputs in producing the product (including duties and taxes levied on procurement of inputs except those for which credit / set-off can be taken) minus sales and marketing expenses.

Page ll of 206.2 Total Bill of Material (Total-HOM) may be calculated based on one of the following depending on data available. Each of these calculations should provide consistent result.

a. sum of the costs of all inputs which go into the product (including duties and taxes levied on procurement of inputs except those for which credit / set-off can be taken).

b. Ex-Factory Price of product minus profit after tax. minus warranty costs.

c. Market price minus post-production freight insurance and other handling costs minus profit after tax, minus warranty costsminus sales and marketing expenses.

6.3 The percentage of domestic value-addition may be calculated based on information furnished as per the following formula:

Percentage of domestic value-addition – Dom-BOMxloo

Total-BOM

It is recommended that each agency assessing should calculate the domestic valueaddition using at least two of the above formulae so as to validate the assessments in this regard and ensure that the domestic value addition that is claimed is consistent.

6.4 Thc Dcpartmcnt of Electronics and Information Technology shall constitute one or more Industry Committees which may advise the Department regarding the profit, freight, insurance and handling charges or typical globally accepted value addition norms for each product/verticals or any other specific references made to it.

7. Self-Certification

7.1 Each domestic manufacturer shall furnish the Affidavit of self-certification to the procuring agency declaring that the electronic product is domestically manufactured in terms of the domestic value addition prescribed. The Affidavit of self-”ccrtification shall be furnished in Form 1 attached to these guidelines.

Page 12 of 207.2 It shall be the responsibility of the domestic manufacturer to ensure that the products so claimed are DMEP in terms of the domestic value addition prescribed for the product. The domestic manufacturer shall also be required to provide a valueaddition certificate on half-yearly basis (Sep 30 and Mar 31 ) duly certified by the statutory Auditors of the domestic manufacturer, that the claims of value-addition made for the product during the preceding 6 months are in accordance with the Policy. Such certificate shall be filed within 60 days of commencement of each half year, to the concerned Ministry / Department.

7.3.1 The procuring agency shall accept the Affidavit of self-certification regarding domestic value addition in an electronic product submitted by a bidder. It shall not normally be the responsibility of procuring agency to verify the correctness of the claim. The responsibility to show the correctness of the same shall be that of the bidder when asked to do so.

7.3.2 In case a complaint is received by the procuring agency or the concerned Ministr IDepartinent against the claim of a bidder regarding domestic alue addition in an electronic product. the same shall be referred to STQC/ Telecommunications Engineering Centre (TEC) (for telecom products) or any other third party testing laboratories or technical auditors accredited by the Department of Electronics and Information Technology / Department of Telecommunications for the purpose’

7,3.3 An)’ complaint referred to STQC) TEC (for telecom products) or any other accredited third party testing laboratories or technical auditors shall be disposed of within 4 weeks. The bidder shall be required to furnish the necessary documentation in support of the domestic value addition claimed in an electronic product to STQC/ ‘I`EC (for telecom products) or any other accredited third party testing laboratories or technical auditors within 2 weeks. The STQC/ TEC (for telecom products) or any other accredited third party testing laboratories or technical auditors may within another two weeks give its finding. If no information is furnished by the bidder- such laboratories may take further necessary action,. to establish the bonafides of the claim.

7.4 The cost of assessing the extent of domestic value addition shall be borne by procuring agency if the domestic value addition is found to be correct as per the Page 13 of 20certificate. However. if it is found that the domestic value addition as claimed is incorrect, the cost of assessment will be payable by the domestic manufacturer who has furnished an incorrect certificate. The manner of enforcing the same shall be defined in the tender document.

7.5 There would be a complaint fee of Rs.2 Lakh or I% of the value of the DMEP being procured. whichever is higher, to be paid by Demand Draft to be deposi~ted with STQC TEC of DOT, as the case may be, or any other third party testing laboratories or technical auditors accredited by the DeitY / DOT along with the complaint by the complainant, In case the complaint is found to be incorrecL the complaint fee shall be forfeited. In case the complaint is upheld and found to be substantially correct, deposited fee of the complainant would be refunded without any interest.

7.6 Each Ministry / Department will publish a list of such entities of testing laboratories and agencies from among those accredited by DeitY / DOT, which may be entrusted with the responsibility of assessing domestic value addition of DMEPs.

in terms of clause 7.3.2 and 7.3.3 above and to whom reference would be made along with the timeframe for completion of this activity by those institutions and the charges to be paid to them.

8. Compliance

8. I Every Ministry/Dcpartmcnt shall monitor the implementation of the policy8.2 With respect to preference to DMEP in government procurement each Ministry Department shall ensure that

a, electronic products are notified under C lause 3 of these guidelines b. concerned Government Ministries/Departments and Government agencies provide preference to DMEP as notified

c. preference to DMEP is provided at L I price and without compromise in technical specifications.

Page 14 of 20d Restrictive tender conditions are not specified as per clause 5.4 e Aggregation of demand wherever feasible, is being done.

f. Extended projection of electronic products which can be procured domestically ispublished for a prospective period of 5 years to enable domestic industry to gear up manufacturing facility for the same.

g. Complaints regarding lack of compliance of the policy are addressed in a time bound manner.

h. Each Ministry/Department shall clearly define the penalties, in case of misdeclaration by domestic manufacturer of the extent domestic I alue addition, in the tender document. The penalties may include forfeiting of the EMD and such other penalties, as may be prescribed by the concerned Ministry /Department in the tender document~

9. Monitoring

9,1 Department of Electronics and Information Technology (DeitY) shall be the nodal Department to monitor the implementation of the scheme. Additionally, Dcpartmcnt of Telecommunications (DOT) shall also monitor the implementation of the scheme for all telecom products.

9.2 Each Ministry Department shall annually, in the month of June, send a declaration indicating the extent of compliance to the policy and reasons for noncompliance thereof. during the preceding financial year~ 10. Reference to Department of Electronics and Information Technology/ Department of Telecommunications

In case of a question whether an item being procured is an electronic product to be covered under the policy, the matter would be referred to the Department of Page 15 of 20Electronics and Information Technology (Deity) / Department of Telecommunications (DOT) for clarification.

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