Software firms want new rules for govt contracts | Economic Times

Software product firms and cloud service providers have urged the government to revise the qualifying criteria for local suppliers to take part in public procurement contracts worth less than Rs 200 crore.The Department for Promotion of Industry and Internal Trade (DPIIT) had in September last year mandated that government departments and ministries deploy only those suppliers who ensure 20-50% value addition for projects of Rs 200 crore or lower. IT industry association Nasscom has suggested an alternative formula to calculate local value addition that focuses on employment and investment in the country.Software product and cloud service providers are finding it difficult to ascertain the local value addition component accurately. As a result, many such companies have not been able to participate in open tenders, with some procurement tenders not receiving even a single bid.The government's preference for local suppliers was intended to help companies that produce goods domestically. It has, however, ended up excluding foreign technology firms from such contracts.To address the issue, Nasscom has made a submission to the Ministry of Electronics and IT (MeitY) and the Ministry of Commerce that software companies that have development centres in India should be treated as local suppliers and classified based on their headcount in the country. Nasscom has also said that those cloud vendors empanelled by MeitY who have physical and virtual hardware located within the country should automatically qualify for these projects."The government is trying to encourage local manufacturing but the procurement norms need to take into account the reality of cloud services, IT products. They cannot be judged by the same criteria as physical products. Companies which are actually putting in resources in India through either employment or physical data centres should benefit from this," said Ashish Aggarwal, vice president, Public Policy at Nasscom. There is currently no guidance or formula that one can apply to measure a software or cloud company's local value addition, he said."It just requires a different mechanism to align with the Atmanirbhar (self-reliant) approach," Aggarwal added. All big technology services providers, including the likes of Microsoft and IBM, have been impacted by the norms. In fact, procurement in government departments has been impacted since they are unable to find any takers for tenders due to these guidelines.Nasscom has suggested that software companies that employ 1,250 people and engaged in software development should be considered Class-I suppliers and companies that employ 500 people should be considered as Class-II suppliers. Class-I local suppliers are supposed to have a local value addition component of more than 50%, while Class-II local suppliers must have between 20% and 50%.In the case of cloud services, it is not possible to apply the definition of 'local content', said Nasscom.MeitY already has stringent norms that require companies to have a local presence and make sure that all data functions and processing happen within the country's boundaries, it added.