Expanding Government Procurement to UK Companies Threatens Small and Medium Enterprises' Benefits
India-UK Trade Deal: Impact on Indian MSMEs and UK Companies in Government Procurement
India's pledge to open up its $600 billion central government procurement market to UK companies under the trade deal could negatively affect Indian micro, small, and medium-sized enterprises (MSMEs). However, Indian companies will not receive the same access to the UK's government procurement process.
India's government procurement market is one of the largest in the world, accounting for approximately 15% of the country's GDP. This procurement spans infrastructure, healthcare, power, education, transport, and defense sectors.
Until now, India had been excluded from the World Trade Organization’s Government Procurement Agreement (GPA), preserving its right to favor domestic firms. Currently, 25% of government contracts are reserved for MSMEs, with sub-quotas for schedules castes/schedules tribes and women-owned enterprises to stimulate industrial indigenization, support job creation, and empower small enterprises.
India has faced pressure from free trade agreement (FTA) partners, particularly the United Kingdom and European Union, to grant national treatment to foreign firms. The Indian-UAE FTA was the first to open the government procurement market in India. The UK becomes the first foreign country to have received legally guaranteed access to India's central government procurement market on such a large scale.
UK companies can now contend for approximately 40,000 tenders annually in sectors such as construction, healthcare, energy, and transportation. These firms will also acquire free access to India's e-procurement portal, making participation more straightforward and informed, according to GTRI.
Critics argue that this move erodes one of India's last remaining industrial policy tools—government procurement preferences—used to promote domestic manufacturing, innovation, and jobs. Ajay Srivastava, founder of GTRI, noted that UK firms with just 20% UK content in their goods or services will now be classified as 'Class 2 Local Suppliers,' granting them the same eligibility to compete in tenders that are designed to promote Indian producers.
On the other hand, UK firms are likely to gain meaningful access to the Indian market due to reduced tariffs and improved trade relations, possibly impacting Indian companies' position in those areas. However, it is worth noting that in the UK, only government procurement worth less than £20 billion is awarded to foreign bidders. As a result, Indian firms may struggle to gain entry into these markets due to their lack of scale and familiarity with UK procurement rules.
- The policy-and-legislation surrounding government procurement in India, which has favorably affected small and medium-sized enterprises (SMEs) by reserving 25% of government contracts for them, may experience a shift due to the India-UK Trade Deal.
- The impact of the India-UK Trade Deal on businesses transcends both nations, as UK companies can now access India's $600 billion central government procurement market, competing in sectors such as construction, healthcare, energy, and transportation for approximately 40,000 tenders annually.
- The move towards opening India's government procurement market to foreign firms, such as UK companies under the India-UK Trade Deal, has sparked criticism from some sectors, suggesting it could erode one of India's key industrial policy tools and potentially curtail the growth of SMEs and domestic manufacturing.
