India to Open $700 Billion Public Procurement Market to U.S. Firms Amid Trade Talks

India is preparing to grant U.S. companies access to a large part of India’s public procurement market which is worth approximately $700-$750 billion. This decision appears to be a strategic policy shift to increase economic relations with Washington. Two senior officials from the Indian government suggested the decision was made recently after India established a trade deal with the United Kingdom that provided British companies with reciprocal access to certain federal contracts.

As part of continuing discussions around potential trade agreements, India is likely to agree to allow American firms to submit bids on federal government contracts of $50-$60 billion. However, this access will only be limited to the federal government with state and local procurement remaining largely limited to domestic bidders.

Historically, India has been mainly closed to foreign firms in its public procurement market; this includes purchases made by central, state and local levels of government and public sector undertakings (PSUs). Currently, 25% of contracts are reserved for small businesses. However, some areas like defence and railways allow for foreign suppliers when no viable local suppliers can provide options as per the Reuters.

The policy shift was discussed during visiting Commerce Minister Piyush Goyal’s trip to Washington would be phased and reciprocal. Officials want to complete a draft interim agreement with the U.S. around early July, using the UK deal’s framework. Under that deal, UK-based firms can bid on Indian tenders of more than INR 200 crore involving non-sensitive federal projects while Indian firms get reciprocal access to the UK’s procurement market.

With resistance to joining the WTO’s Government Procurement Agreement over fears about the protection of micro, small and medium enterprises (MSMEs), the government has assured that a minimum of 25 percent of the orders will continue to be reserved for small businesses.

Industry experts believe the opening will create better opportunities for Indian firms internationally and update procurement practices by introducing more competition.