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After refusing to take on binding commitments to open up government procurement in its free trade negotiations so far, India finally seems to have bitten the bullet. In the recently-concluded India-UAE Comprehensive Economic Partnership Agreement (CEPA), the government has agreed to extend “national treatment” to UAE firms albeit with a number of safeguards and exceptions.
Domestic industry is apprehensive that allowing UAE firms in the area of government procurement could hit domestic companies and also encourage other partners such as the EU, Japan, Australia and the UK to ask for similar access. But sources tracking the development maintain that with safeguards in place and several exclusions, domestic interests will be protected.
“India had so far insulated government procurement, estimated at over one-fifth of the country’s GDP, from commitments under free trade pacts. Including it in the India-UAE CEPA is a big step for the country. But the opening up has been calibrated with the inclusion of only Central government procurement and exclusion of a number of broad sectors such as infrastructure projects, construction projects, healthcare procurement and procurement under agriculture support programmes,” a source told BusinessLine.
Domestic industry apprehensive
Industry players are, however, still apprehensive. They fear that opening up the government procurement to such large companies and giving them national treatment could eat into the business of domestic companies who may not be able to compete. “The threshold level for entry of UAE businesses is high but the kind of competition that could come from entities operating in the free trade zones could be huge,” a representative of a MSME unit said.
The India-UAE CEPA, which is likely to come into force from May, will open up preferential market access for India on over 97 per cent of UAE’s tariff lines which account for 99 per cent of Indian exports to the country, including for labour-intensive sectors such as gems and jewellery, textiles, leather, footwear, and sports goods. India will offer preferential access to the UAE on over 90 per cent of its tariff lines.
The inclusion of government procurement in the India-UAE CEPA could immediately lead to countries like Japan asking for market access in the area. “There is a provision in the India-Japan CEPA that if India opened up more to other countries in future free trade pacts, it will have to open up for Japan too, subject to negotiations. One wonders how India would handle it,” said Ranja Sengupta from Third World Network.
Other countries may enter
At present, India does allow foreign companies to participate in government procurement contracts, but it does so on its own terms, pointed out Biswajit Dhar, Professor, JNU. “The flexibility that WTO gives us regarding providing favourable treatment to domestic players in government procurement will be gone once we start taking on bilateral commitments in the area. Although in the India-UAE CEPA, the government has tried to build in protection by stating that it can retain its flexibility to favour domestic companies by passing specific orders, once other countries too start making demands in the area, the going may become more difficult for India,”Dhar said.
With the EU, the UK, Japan and the US, all keen to get India to agree to commitments in the area of government procurement, it may be difficult to ward them off, now that a beginning has been made with the UAE, Dhar added.
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