Encouraging Make in India clause to printing banknotes– a case of central bank using industrial policy…

This is an interesting development. RBI cancelled two older tenders for Supply of Security Features for Indian Banknotes. It has issued a new tender  which makes it mandatory for the bidders to agree/satisfy the Make in India clause.

The clause states:

Bidder may note that their acceptance of the “Make in India Clauses described below is a mandatory requirement for considering the bidder eligible. The successful bidder is required to set up the manufacturing facility in India within 2 years from the date of signing of contract and increase the local content in planned manner from the third year as shown below :

Domestic value addition in terms of cost of the product offered shall be
Year 3 – > 35%
Year 4 – > 40%
Year 5 – > 50%

The bidder shall provide the undertaking for acceptance of the above condition failing which the bid will be summarily rejected. Failure of the bidder to meet the above conditions after signing the agreement will result in penalty as stipulated in the Contract which includes termination of the contract.

The bidder may set up his manufacturing unit in India through a subsidiary or under license or through transfer of technology to any local manufacturer permitted by the purchaser. The bidder may indicate such tie ups for manufacturing in India if an arrangement is already in place.

The provisions of the Public Procurement (Preference to Make in India) Order 2017 dated June 15, 2017 (and subsequent amendments, if any) by Department of Industrial Policy and Promotion, GoI shall apply to this PQB to the extent feasible. The local suppliers are exempted from experience and past performance criteria, and average annual turnover requirement under financial standing. Local suppliers are not required to provide any proof of supply to other countries/ exports.

The criteria for Capability, Equipment and Manufacturing facilities as well as financial loss and net worth under the financial standing eligibility criteria shall be applicable to local suppliers also. The bidder company may use the financial criteria of its own holding company or its Principal manufacturer in this case. However, the Holding company and/or the Principal manufacturer/ collaborator will have to counter guarantee the financials and/or bank guarantees as issued for the purpose of this PQBN.

The idea obviously is to ensure banknote technologies become increasingly local over the years. India has been making consistent efforts to have the entire banknote printing process in India. Starting from setting up a minting unit in Nasik in 1920s to this new security initiative as well.

It is also an interesting case of a central bank using industrial policy which is basically seen as a government tool to push industrialization in one’s country. There are ample cases of governments doing them in the past and economists divided over their success. One does not usually see Central banks engaging in industrial policy kind of measures. They usually support more market driven processes which suggest let the cheapest bidder win..

Will be interesting to watch this space. Hopefully, RBI will disclose more about this Make in India initiative as we get bidders and so on…



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