New Delhi [India], May 8 : India should approach the implementation of the Government Procurement (GP) chapter in the recently concluded India-UK Free Trade Agreement (FTA) with extreme caution, according to a report by the Global Trade Research Initiative (GTRI).
The report highlights potential risks to domestic industry, especially Micro, Small and Medium Enterprises (MSMEs), due to increased foreign competition.
It said, "India must approach the implementation of the GP chapter in the India-UK FTA with extreme caution"
India's GP market is among the largest in the world, estimated at nearly USD 600 billion annually, which is around 15 per cent of the country's GDP.
The report stated that this massive public spending supports vital sectors such as infrastructure, healthcare, education, transport, power, and defence.
Moreover, beyond being a tool for public spending, government procurement serves as a strategic instrument to promote local manufacturing, strengthen MSME capabilities, and support national initiatives like 'Make in India' and 'Atmanirbhar Bharat'.
Unlike some developed countries, India has not joined the World Trade Organization's Government Procurement Agreement (GPA), thereby retaining its policy space to favour domestic firms. Under existing rules, 25 per cent of all government procurements in India are reserved for MSMEs.
There are also specific quotas for enterprises owned by women and those owned by Scheduled Castes and Scheduled Tribes.
However, India is now facing increasing pressure from its trading partners, particularly the UK and the European Union, to open up its GP market. This demand has translated into a significant policy shift in the India-UK FTA, which includes a detailed GP chapter.
Under the FTA agreement, India has agreed to allow UK firms to participate in central government tenders. Even those with just 20 per cent UK content will be considered 'Class 2 Local Suppliers' under the Make in India framework. This designation was previously reserved for Indian firms with higher domestic content.
GTRI report warned that giving UK companies near-equal access to government contracts could push Indian MSMEs out of the market. These small businesses rely heavily on protected government procurement to sustain themselves.
Additionally, such a move could weaken one of India's last few industrial policy tools used to encourage domestic production, innovation, and employment.
GTRI recommends that India should exclude strategic sectorssuch as defence, railways, and core infrastructurefrom foreign access to safeguard national interests and support local industry.
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