🇮🇳 DPIIT · Ministry of Commerce & Industry
Public Procurement
Preference to Make in India
Order 2017
PART I
Preamble, Basis & Definitions
PARA 1
Background & Legal Basis
- 📜Issued under Rule 153(iii) of GFR 2017 by DPIIT. Addressed to all Central Ministries, Departments, CPSUs.
- 📅Original Order: 15.06.2017. Revised on 28.05.2018, 29.05.2019, 04.06.2020, 16.09.2020. Latest revision: 19.07.2024 — modifies Paras 2, 3, 5, 10 & 13.
- 🎯Core purpose: Use the scale of Govt. procurement to build domestic manufacturing capacity, create employment, and advance Make in India.
PARA 2
Definitions — Exam-Ready Summary
| Term | In Plain English |
|---|---|
| Local Content (LC) | % of value added in India. Formula: (Total value ex. domestic indirect taxes − Imported content incl. customs) ÷ Total value × 100. Nodal Ministry can prescribe a different formula. |
| Class-I Local Supplier | LC ≥ prescribed minimum for Class-I. Default: 50%. Gets purchase preference. |
| Class-II Local Supplier | LC ≥ Class-II minimum but < Class-I minimum. Default band: 20%–50%. No purchase preference. |
| Non-Local Supplier | LC < Class-II minimum. Permitted only in Global tenders. No preference. |
| L1 | The lowest evaluated bid in a procurement process. |
| Margin of Purchase Preference | How much above L1 a Class-I supplier can quote and still win preference. Fixed at 20%. |
| Nodal Ministry | The Ministry/Department responsible for a specific item — sets LC thresholds for that item. |
| Procuring Entity | Any Central Ministry, Dept., attached/subordinate office, autonomous body, or Govt. company. |
| Works | Per Rule 130 GFR-2017 + turnkey works. For this Order: EPC contracts = Works; SI contracts = Services. |
⚠️ Three things always excluded from LC calculation
- ✖Imported goods sourced from resellers/distributors — even if bought locally in India.
- ✖Licence fees, royalties, technical charges remitted outside India.
- ✖Repackaged / Refurbished / Rebranded imported products — treated as mere reselling. (Refurbishing = repair, no new goods; Repackaging = bulk to smaller; Rebranding = new label on imported product.)
- 📊Multiple-item contracts: Use weighted average of local content across all items.
- 📄Resellers must submit OEM certificate for country of origin and full cost break-up including royalties/licence fees paid abroad.
PARA 2A
PLI Scheme Manufacturers — Automatic Class-II Status
- 🏭Any manufacturer who has received PLI incentive for an item is automatically treated as Class-II local supplier for that item — regardless of actual LC.
- ⬆️If their LC ≥ Class-I threshold → they qualify as Class-I (the higher class applies).
- 📅Applicable only for the time period notified by the PLI Ministry — not permanent.
PART II
Supplier Classes & Eligibility
Top tier
Class-I Local Supplier
Eligible in ALL procurement types. The only category that gets purchase preference. Mandatory for Para 3(a) notified items.
≥ 50% LCMiddle tier
Class-II Local Supplier
Eligible in domestic procurement. NOT eligible for Para 3(a) items. Eligible in Global tenders. Gets zero purchase preference.
≥ 20%, < 50% LCLowest / foreign
Non-Local Supplier
Eligible only in Global tenders. Completely excluded from domestic procurement. No preference of any kind.
< 20% LC
PARA 3
Who Can Bid — by Procurement Type
| Supplier | Para 3(a): Sufficient Local Capacity Item | Para 3(b): Other Domestic | Global Tender |
|---|---|---|---|
| Class-I | ✔ Eligible | ✔ Eligible | ✔ Eligible |
| Class-II | ✘ Excluded | ✔ Eligible | ✔ Eligible |
| Non-Local | ✘ Excluded | ✘ Excluded | ✔ Eligible |
⚠️ Global Tender below ₹200 Crore — Restricted
For items not under Para 3(a), Global Tender cannot be issued if estimated value < ₹200 Crore — unless approved by Competent Authority designated by Dept. of Expenditure (Rule 161(iv) GFR 2017).
PARA 3.1
Mandatory Class-I Sourcing in SI/EPC/Turnkey Tenders
- ✅Items notified by Nodal Ministry as having sufficient local capacity (with specific HSN codes) → must be sourced from Class-I only in SI/EPC/Turnkey/Service tenders. No exceptions without approval.
- 🔓Relaxation only on case-specific basis with approval of: Secretary of Administrative Ministry, or designated Competent Authority.
PART III
Purchase Preference — How It Works
PARA 3A
The Golden Rule
- ✅Class-I → gets preference. Class-II and Non-local → get zero preference, ever.
- 🔑The preference mechanism differs based on whether the procurement is divisible or indivisible.
PARA 3A(b)
Divisible Goods/Works — Preference Mechanism
📋 When the quantity can be split between suppliers
Step-by-Step
- ①Evaluate all bids. Identify L1. If L1 = Class-I → full quantity to L1. Stop.
- ②If L1 ≠ Class-I → award 50% to L1. Invite lowest Class-I bidder to match L1 for the remaining 50%, only if their price is within L1 + 20%.
- ③If that Class-I declines or accepts partial → move to next higher Class-I within 20% margin, repeat.
- ④Any balance still uncovered → can be ordered on L1 bidder.
PARA 3A(c)
Indivisible Goods/Works & Services — Preference Mechanism
📋 When only one supplier can win the whole contract
Step-by-Step
- ①Identify L1. If L1 = Class-I → award to L1. Stop.
- ②If L1 ≠ Class-I → invite lowest Class-I (within 20% margin) to match L1 exactly. If matched → award to Class-I.
- ③If lowest Class-I declines → invite next higher Class-I within 20% margin. Repeat.
- ④If no Class-I within 20% agrees to match → award to L1.
PARA 3A(d)
Class-II — Absolute Bar on Preference
🚫 Absolute Rule — No Exceptions
Class-II local supplier gets zero purchase preference in any procurement — whether divisible, indivisible, goods, works, or services. There is no scenario in which Class-II gets preference.
PARA 3B
Multiple Bidder Tenders
- a.Para 3(a) item (sufficient LC notified) → only Class-I can bid → all awardees will be Class-I.
- b.Other items → Class-II and Non-local may also participate per this Order.
- c.50% threshold rule: If Class-I suppliers qualify for ≥ 50% of tendered quantity → award normally to all. If Class-I < 50% → give preference to Class-I over others within 20% margin of highest qualifying bid until Class-I total reaches 50%.
- d.Within Class-I, start with the lowest quoting (within 20% margin), subject to per-supplier quantity limits. If ineligible → next higher Class-I.
- e.Entities may add tender-specific criteria within these policy limits.
PART IV
Thresholds, Exemptions & Key Numbers
Small Purchase Exempt
<₹5L
Full Order inapplicable. Anti-splitting rule enforced.
Class-I Default LC
50%
Nodal Ministry can only go higher, never lower.
Class-II Default LC
20%
Nodal Ministry can only go higher, never lower.
Preference Margin
20%
Fixed. Only reducible by Admin. Dept. with Minister's approval.
PARA 4
Small Purchase Exemption
- ✅Procurement < ₹5 lakhs → fully exempt from this Order.
- 🚫Procuring entities must not split contracts to stay under ₹5L and avoid the Order.
PARA 4A
Spares & Consumables — Closed Systems Exemption
- ✅Spares, consumables for closed systems, and Maintenance/Service contracts with OEM / OES / OPM → fully exempt from this Order.
PARA 5
Minimum Local Content — Key Rules
- 📌Default thresholds: Class-I = 50%, Class-II = 20%.
- ⬆️Nodal Ministry may only prescribe higher percentages — never lower than defaults.
- 📋If Nodal Ministry has not notified higher thresholds → defaults (50%/20%) apply automatically.
PARA 6
Margin of Purchase Preference
PARA 7
Advance Specification — Lock-in Rule
- 📋Minimum LC, preference margin, and preference procedure must be stated upfront in the tender notice.
- 🔒Once stated, cannot be changed during that procurement transaction.
PARA 8
GeM (Government e-Marketplace)
- 🏷️GeM to mark items meeting minimum LC at the time of item registration.
- ⚙️GeM to provide automated price comparison — with and without purchase preference.
- ✅GeM to seek supplier's consent before exercising purchase preference.
PART V
Verification, Compliance & Penalties
PARA 9
Local Content Verification — Three-Stage Framework
| When | Threshold | What is Required |
|---|---|---|
| At tender stage | All values | Self-certification of LC % + location of value addition |
| At tender stage | > ₹10 Crore | Certificate from statutory auditor / cost auditor (companies) or CA / CMA in practice (others) |
| At execution | > ₹10 Crore | CA/CMA-certified LC certificate. If not possible at execution → may be submitted after contract completion, within time acceptable to procuring entity |
⚠️ Penalties for LC Non-compliance
What happens when a supplier fails to meet the declared LC?
- 💸If supplier's category drops (e.g., Class-I → Class-II or Non-local; Class-II → Non-local) → penalty up to 10% of contract value.
- ✅Contract itself will not be terminated — penalty only.
- ⛔False declaration → breach of Code of Integrity (Rule 175 GFR) → debarment up to 2 years (Rule 151(iii) GFR) + other legal action.
- 🌐Debarment by any entity is cross-entity — applies to all other procuring entities for the same duration, effective from date of website upload.
- 🔍Nodal Ministries may conduct random independent verification of self-declarations using internal/external expert committees.
- 💰Fees may be prescribed for complaint filing.
- 📋Dept. of Expenditure to maintain a centralised/decentralised debarment list on website(s), ensuring no disruption to ongoing procurements.
PARA 10
Tender Specifications — Rules for Procuring Entities
| Sub-Para | Rule |
|---|---|
| 10(a) | Eligibility conditions must NOT ask for proof of supply in other countries or proof of exports. |
| 10(b) | Turnover, production capacity, and financial conditions must not unreasonably exclude Class-I/II beyond what quality and creditworthiness genuinely require. |
| 10(c) | All existing eligibility norms must be reviewed and revised within 2 months of this Order. |
| 10(d) | Reciprocity Clause — see below. |
| 10(e) | Specifying foreign certifications / foreign brands / foreign-specific tech specs is discriminatory. Permissible only after written approval of Department Secretary. |
| 10(f) | Ministries/Depts. with annual procurement > ₹1000 Crore must publish 5-year procurement projections on their website, updated annually. |
🔄 Para 10(d) — Reciprocity Clause
- ①If Indian suppliers are barred from a foreign govt.'s procurement (by registration requirements, value limits, etc.) → Nodal Ministry informs all its entities, PSEs, State Govts., and GeM for reciprocal action.
- ②That country's entities → barred from India's Govt. procurement for all related items — except those on a permitted list published by the Ministry.
- ③Must be included in all tenders by Central Govt. and all GeM purchases for identified items. State Govts. encouraged to adopt similarly.
- ④'Entity' of a country = as defined in India's FDI Policy (DPIIT).
PARA 10A
Consequences for Including Discriminatory Tender Conditions
⚠️ Action Against Erring Officials
If bid documents contain restrictive / discriminatory conditions:
- 🔍Administrative Department must conduct an inquiry to fix individual responsibility.
- ⚖️Administrative or other action taken against erring officials.
- 📋All such actions intimated to the Standing Committee.
PARA 11
Nodal Ministry — Pre-notification Homework
- 📊Before notifying LC requirements, Nodal Ministries must assess actual domestic capacity, supply base, and local competition for each item.
- 💰Goal: ensure this Order does not create unnecessary cost increases for the Govt.
PARA 12
Annual Ratcheting Up of LC Requirements
- 📈Nodal Ministries may annually review and raise LC requirements — provided there is adequate local competition and quality available at the higher threshold.
PART VI
Special Provisions
PARA 13
Licensed Manufacturing + Technology Transfer — LC Exemption
- 🔬Nodal Ministries may exempt a supplier from minimum LC if: product is manufactured in India under a foreign licensor's IP, AND there is a technology transfer/collaboration agreement with a phased roadmap for increasing LC over time.
- 🎯Rationale: Allow licensed production to begin while ensuring domestic content grows progressively — not frozen at zero.
PARA 13A
JV Threshold — When Foreign Companies Must Partner with Indians
- 📐Applies to items with large public procurement but no sufficient local capacity notification. Nodal Ministry notifies an upper threshold value above which foreign companies must form a JV with an Indian company to participate.
- 📈Such JVs can be exempted from minimum LC requirement — but the LC must increase in a phased manner.
PARA 14
Power to Grant Exemption or Reduce Thresholds
- 🔑Who: Administrative Department (not the procuring entity) — with written Minister-in-Charge approval and recorded reasons.
- a.May reduce minimum LC below prescribed level
- b.May reduce purchase preference margin below 20%
- c.May exempt any item or supplier from this Order or any part
- 📋Must certify that the item is not a Para 3(a) notified item. Copy of order to Standing Committee and Nodal Ministry.
PARA 15
Govt. Companies & Non-GFR Entities
- 🏢Entities not governed by GFR → their administrative Ministry/Department must issue policy directions to ensure compliance with this Order.
PART VII
Standing Committee & Miscellaneous
PARA 16
Standing Committee — Composition
CHAIRMANSecretary, DPIIT
MEMBERSecretary, Dept. of Commerce
MEMBERSecretary, MeitY
MEMBERJoint Secretary (Public Procurement), Dept. of Expenditure
MEMBER-CONVENORJoint Secretary, DPIIT
AS-NEEDEDSecretary of concerned Dept. (for item-specific issues); Technical experts co-opted by Chairman as needed
PARA 17
Standing Committee — Functions (meets ≥ once every 6 months)
- a.Oversee implementation; recommend to Nodal Ministries and procuring entities.
- b.Annual assessment + periodic monitoring of compliance.
- c.Identify Nodal Ministries and allocate items for LC notifications.
- d.Call for compliance details and returns from any entity.
- e.Flag and suggest remedies where implementation leads to restrictive practices, cartelization, or cost inflation.
- f.Examine Para 13 (technology transfer) cases to verify progressive indigenization is actually happening.
- g.Consider any other issue under this Order.
PARA 18
Removal of Difficulties
- 🔧Ministries/Departments and Boards of Directors of Govt. companies may issue clarifications to resolve implementation difficulties.
PARA 19
Existing Policies — Which Prevails?
- 🥇A Ministry's own local content policy approved by Cabinet after 1 Jan 2015 → overrides this Order.
- 🔄All other existing local content orders → must be brought in line with this Order within 2 months.
PARA 20
Transitional Provision
📌 Prospective Only
This Order applies only to tenders issued on or after its date. Any tender notice issued before this Order is unaffected — even if the contract is signed later.