India Suspends ‘Buy India’ Provisions after just five months

Updated July 8, 2013, 5:55 p.m. ET

India Suspends ‘Buy India’ Provisions


NEW DELHI—India on Monday suspended its “Buy India” guidelines, which had come under fire, after just five months. The entire policy “will be revisited and reviewed,” according to a statement on the prime minister’s website. The guidelines, introduced in February, mandated that electronic goods purchased by the government contain a certain proportion of locally made hardware. “There have been some reservations,” India’s telecommunications secretary, M.F. Farooqui, said on the sidelines of an industry event in New Delhi. “We wanted to address that.” Global investors had requested that India reconsider the policy, said Guarav Verma, head of the New York office for the U.S.-India Business Council. International companies had told the government that the policy might prompt them to set up operations elsewhere, he added.Monday’s decision followed a meeting between representatives of the Prime Minister’s Office and the two agencies that created the policy: the Department of Telecommunications and the Department of Electronics and Information Technology.

The latter agency, known as Deity, intends to submit a revised policy to the cabinet within four weeks, according to the statement. Deity couldn’t be reached for comment.

Meanwhile, Indian trade groups welcomed the decision.

“We are not against domestic manufacturing, but against the unrealistic targets,” said Rajan S. Mathews, director general of the Cellular Operators Association of India, which represents half a dozen cellphone operators, including Bharti Airtel Ltd.532454.BY +0.82% and the local unit of Vodafone Group PLC. VOD.LN +0.08%

The policy’s local-manufacturing requirement was based on the total price of a product. For telecom products, locally made components had to equal at least 30% of the value. That figure was to reach 100% by 2020. For information-technology-related products such as computers and printers, the figure was 25%, and would increase to 45% within five years.

The Indian government had been trying to convince foreign governments and manufacturers that the policy wasn’t destructive to business or biased in favor of Indian companies.

Communications and Information Technology Minister Kapil Sibal met in April with several company representatives and ambassadors from several countries to clarify the policy.

“We indicated to them that preferential market access is for government and security, and will occupy only 3% to 4% of the market—96% to 97% of the market is open,” he told The Wall Street Journal then.

The minister’s statement conflicted with a study by the Information Technology Industry Council, a U.S.-based lobbying group, which estimated that government procurement accounts for roughly half of the $50 billion spent annually on IT products and services in India.

The Prime Minister’s Office seemed to be sensitive to the confusion surrounding the scope of the policy. The statement announcing the suspension of the policy said the revisions would include “a centralized clearing house” for future announcements.

The policy also covered electronic goods “with security implications,” and the local manufacturing requirement applied to both private and public purchases of these products. The government said individual ministries would define which products would be covered under the policy.

“The revised proposal on [preferential market access] in the private sector for security-related products will not have domestic manufacturing requirements, percentage based or otherwise,” the statement said. It also said the National Security Council Secretariat would provide a definition for “security.”

India currently makes almost none of the components that go into the products covered by the policy, such as mobile phones, laptop computers, automatic teller machines and wireless routers.

The government said the Buy India requirements are needed to boost an anemic manufacturing sector and cut a burgeoning import bill. In November the government said electronics imports could reach $400 billion by 2020, surpassing oil to become India’s most costly import.

Industry advocacy groups hope that the new policy focuses more on “market-based incentives” to expand the electronics-manufacturing industry, said John Neuffer, head of global policy at the Information Technology Industry Council, which represents companies including Google Inc. GOOG +1.30% and International Business Machines Corp. IBM +0.03%

“The reality is that there are enough U.S. companies manufacturing in India, and they want to expand,” said Ron Somers, president of the U.S.-India Business Council. “The reason they haven’t is because of the restrictions in the country, such as infrastructure.”

He added: “How many Indian-made products are out there that you know are desired products? Not many. There is a long way to go,” he said.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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