Purchase Preference to Public Sector Enterprises: A Short History

This brief post summarises the evolution of the Law on Purchase Preference to Public Sector Enterprises. The purpose of this is to act as a first reference point to researchers interested in the subject. Since 1992, the overnment of !ndia has been followin" the Purchase Preference Polic#.$1% &nder the said Polic#, the 'epartment of Public Enterprises, overnment of !ndia had sou"ht to liberalise the industrial polic# of !ndia and stressed on the need for improvement of the performance of public enterprises based on commercial principles. The overnment deemed protection of public enterprises throu"h price or purchase preference was not in accordance with the liberalised industrial polic#. Therefore, the 'epartment of Public Enterprises recommended replacin" the then prevailin" price preference with purchase preference in public procurement. &nder purchase preference, where the price (uoted b# a public enterprise in public procurement was within 1) per cent of the lowest bidder *L1+ price, ceterus paribus, purchase preference ma# be "ranted to the said public enterprise concerned provided it was willin" to match the L1 price, that is, suppl# at the price (uoted b# the lowest bidder. This polic# was transitor# and was operable for three #ears. The ,otification providin" for Purchase Preference Polic# also recommended that price- purchase preference polic# had to be done awa# with within three #ears from the date of its issue, that is, .anuar# 199/, b# which time, the public enterprises were to adjust to the new environment of competition and efficienc#. 0owever, the polic# was e1tended in 199/ up to 2arch 1993$2% and in 4ctober 1993 up to 2arch 2))).$5% The 1993 notification restricted the purchase preference to manufactured items produced b# public sector enterprises or joint ventures with public sector enterprises where the purchase was in e1cess of 6s. five crore. 7urther, the notification clarified in that in case of joint ventures with public enterprises, there had to be a value addition of at least 2) per cent b# the public sector enterprises in the item manufactured. !n 7ebruar# 1998, it was clarified that the above notification was applicable even in case of services provided b# public sector enterprises.$9% The purchase preference was a"ain e1tended in 2)))$/%, 2))2$:%, 2))9$3% and 2))/$8%, subject to certain conditions. The 2))/ e1tension was to be effective till 2arch 2))8. 0owever, the polic# was reviewed pursuant to the decision of the Supreme ;ourt in ;aterpillar !ndia Pvt. Ltd. v. <estern ;oalfields Ltd. $9% !n the said decision, it was contended b# the =ppellant that the 2))/ "uidelines ma>e purchase preference mandator# as compared to the previous "uidelines which used permissive lan"ua"e in respect of purchase preference. 7urther complaint was raised re"ardin" the efficac# of such a polic# which "ranted monopol# to public sector enterprises. ;onse(uentl#, the Supreme ;ourt issued the followin" "uidelines in the case? The concerned ministries are directed to consider the issues raised b# the =ppellant and to consider <e, therefore, direct that industr#@wise assessment be done and to perform an industr#@wise assessment of the need for preference. <here there is cost@effectiveness in a public sector enterprise, there is no need to "ive preference over others. The assessment should also decide whether and to what e1tent there should be preference so as to ensure a level pla#in" field. !f purchase preference is re(uired, the mar"in of preference should be fi1ed. 7urther, if the object of the tender is to invite forei"n direct investment, the impact of purchase preference on such investment should be considered. The e1tent of discretion is to be "iven as to whether the purchase preference should be followed or not should be re@introduced. The above e1ercise is to be underta>en b# the concerned ministries within four months from the date of the jud"ement. !n the interim, the present polic# shall continue to appl# till the issue is reconsidered afresh b# the concerned departments of the overnment of !ndia. <hile fi1in" the norms, the capacit# of a part# to deliver the subject matter of the contract and that of the competitors should be ta>en note of. ;onse(uentl#, the 'PE revisited its previous notifications and came up with the fresh notification in ,ovember 2))3$1)% and instructed the followin"? The Purchase Preference Polic# would terminate with effect from 51.)5.2))8.

 This decision would not affect the Purchase Preference Polic# framed for specific sectors b# the relevant 2inistr#- 'epartment. The ;oncerned 2inistr#- 'epartment would be entitled to evolve- review preferential policies for the sectors of their concern, as per their re(uirement. !n view of the above notification, the Purchase Preference Polic# ceased to be effective from 51.)5.2))8. ;onse(uentl#, the ;A; !nstructions issued in 2arch 2))9 e1empt the Purchase Preference Policies as made b# the relevant 2inistries- 'epartments from the ban on post@tender ne"otiations. $1% 4ffice 2emorandum ,o. 'PE-15*19+-91@7in.dated 15 .anuar# 1992, available at http?--dpe.nic.in-importantBlin>s-dpeB"uidelines-priceBpurchaseBpreference-"lch):2 *accessed on 28 ,ovember 2)15+. $2% 'PE 42 ,4.'PE-15*19+-91@7in. dated 1/ 2arch 199/ $5% 'PE 42 ,4.'PE-15*19+-91@7in. dated 51 4ctober 1993, available at http?--dpe.nic.in-importantBlin>s-dpeB"uidelines-priceBpurchaseBpreference-"lch):5. $9% 'PE 42 ,o.'PE-15*19+-91@7in. dated 1) 7ebruar# 1998, available at http?--dpe.nic.in-importantBlin>s-dpeB"uidelines-priceBpurchaseBpreference-"lch):9. $/% 'PE 42 ,o. 'PE-15*5+-2)))@7in.@ L@5) dated 19 September 2))), available at http?--dpe.nic.in-importantBlin>s-dpeB"uidelines-priceBpurchaseBpreference-"lch):/ and 'PE 4.2. ,o.'PE-15*5+-2)))@7in. dated 5) 4ctober 2))), available at http?--dpe.nic.in-importantBlin>s-dpeB"uidelines-priceBpurchaseBpreference-"lch)::. $:% 'PE 42 ,o. 'PE-15*1+-2))2@7in. dated 19 .une 2))2, available at http?--dpe.nic.in-importantBlin>s-dpeB"uidelines-priceBpurchaseBpreference-"lch):9 $3% 'PE 4.2. ,o.'PE-15*12+-2))5@7in. dated 2:th 4ctober 2))9, available at http?--dpe.nic.in-importantBlin>s-dpeB"uidelines-priceBpurchaseBpreference-"lch):1) $8% 'PE 42 ,o. 'PE.15*12+-2))5@7in. Aol. !! dated the 18th .ul# 2))/, available at http?--dpe.nic.in-importantBlin>s-dpeB"uidelines-priceBpurchaseBpreference-"lch):11 $9% =!6 2))3 S; 2931? *2))3+ 11 S;; 52? 2=,&-S;-3:8/-2))3 $1)% 'PE 42 ,o. 'PE-15*1/+-2))3@7in dated 21st ,ovember 2))3, available at http?--dpe.nic.in-importantBlin>s-dpeB"uidelines-priceBpurchaseBpreference-"lch):12