Make in India programme: There are concerns that any change in the rule may upset the Make in India programme, which relies also on Local orders by the foreign firms.
Impact on MSME sector: The aim of the local sourcing is to help micro, small and medium enterprises (MSME) and this purpose may be defeated if the local sourcing norm is diluted. Currently, the MSME contribute 40% to India’s export and employ around 40 million workers.
Other issues: Opposition parties may see the move as supporting foreign firms at the cost of Indian firms who may not be able to compete with the foreign firms.
Way Forward
Any change in local sourcing rule will hinge on how the government finally balances the conflicting interests without upsetting the interest of the MSMEs.
The long terms aim should be to develop the capacity of the Indian enterprises so to obviate the need for dependence on the local sourcing norms.
Recently Gujarat, Maharashtra and Himachal Pradesh cut value added tax (VAT) on petrol and diesel in tandem with the central government’s decision to reduce excise duty.
This raised the expectations that the petroleum products may be added in the goods and service tax (GST).
The actions of the three state governments will put pressure on other states to cut VAT on petrol and diesel.
