Restrictions On Public Procurement: Amending General Financial Rules 2017


  • On 24th July, 2020, the Government amended the General Financial Rules 2017 to enable imposition of restrictions on bidders from countries which share a land border with India on grounds of defence of India, or matters directly or indirectly related thereto including national security.
  • For this, Rule 144 of the General Financial Rules, 2017 entitled ‘Fundamental principles of public buying’ has been amended.

Reason for such Action

  • Chinese imports and investments have been facing intense scrutiny in India after a tense border standoff since the last month.
  • The decision has been taken to prevent the influx of Chinese products and investments into India, following the clashes between Indian and Chinese troops in Galwan Valley.
  • India is aiming at limiting trade links with China as part of policy to cut dependence on that country.

About the Amendments

Mandatory Registration

  • According to the new order, any bidder from countries sharing a land border with India will be eligible to bid in any procurement whether of goods, services or works only if the bidder is registered with the ‘Competent Authority.’
  • The Competent Authority, in this case, is the Registration Committee constituted by the Department for Promotion of Industry and Internal Trade (DPIIT).
  • Political and security clearance from the Ministries of External and Home Affairs respectively will be mandatory.

Applicability

  • It will be applicable to all autonomous bodies, public sector banks and financial institutions, central public sector enterprises, public-private partnerships receiving financial support from the government or public sector undertakings, union territories and National Capital Territory (NCT) of Delhi and the linked agencies.

Invoking Provisions of Article 257(1)

  • The Central government has invoked the provisions of Article 257(1) of the Constitution, directing the state governments to implement this order for all public procurement.
  • For procurementby State Governments, a Competent Authority will be constituted by the states but political and security clearance will remain necessary.

Exceptions

  • Relaxation will be provided for the procurement of medical supplies for containment of COVID-19 global pandemic till December 31st, 2020.
  • Also, the order for prior registration will not apply for countries to which the Government of India extends lines of credit or provides development assistance, even if it shares a land border with India.
  • It does not apply to procurement by the private sector.
  • This order will also not apply to cases where orders have been placed or a contract has been concluded or letter of acceptance has been issued, but new tenders will be covered under this order.
  • Also, if the first stage of evaluation of qualifications has not been completed in the already invited tenders, bidders not registered under the new order will be treated as not qualified.

Impact

  • The move aimed at keeping Chinese companies out could hit sectors with heavy import content and dependence on supplies from China.
  • Infrastructure sectors such as power sector — particularly solar, telecom, highways — are likely to get impacted at different levels.
  • However, it will provide a major push to the government’s Atmanirbhar Bharat Abhiyaan, making India self-reliant by curbing the dependency of import from China.

Previous Anti-China Measures

‘Country of Origin’ Made Mandatory on GeM              

  • In June, 2002, the government made it mandatory for sellers on the Government e-Marketplace (GeM) portal to clarify the ‘country of origin’ of their goods when registering new products.
  • The GeM portal now allows buyers to reserve a bid for Class I local suppliers, or suppliers of those goods with more than 50 per cent local content.

Digital Strike: Banning Chinese App

  • In June, 2020, the government announced an interim ban on 59 apps with Chinese links including TikTok, ShareIt, UC Browser, CamScanner and WeChat citing “emergent threats” to the country’s sovereignty and national security.
  • On 27th July, 2020, the government again banned 47 more Chinese apps that were clones of the 59 apps banned already.

Amending FDI Rules

  • In April, 2020, the government had amended the FDI rules mandating prior approval for investment by entities in countries that share land borders with India.
  • The move came days after China’s central bank, the People’s Bank of China (PBoC), raised its shareholding in Housing Development Finance Corporation (HDFC) to over one per cent.

General Financial Rules (GFRs)

  • GFRs are set of rules that deal with matters that involve public finances.
  • They were first issued in 1947 bringing together all the existing orders.
  • They are instructions that pertain to financial matters.
  • They lay down the general rules applicable to Ministries / Departments, and detailed instructions relating to procurement of goods are issued by the procuring departments broadly in conformity with the general rules, while maintaining flexibility to deal with varied situations.

Article 257(1)

  • It states that the executive power of every State shall be so exercised as not to impede or prejudice the exercise of the executive power of the Union.
  • It also authorises the Union to give such directions to a State as may appear to the Government of India to be necessary for that purpose.
  • In case, if the state failed to comply with (or to give effect to) any directions given by the Centre under Article 257(1), it will be lawful for the President to impose President’s rule under Article 356.

Source : Civil Services Chronicle Online, July, 2020