Make in India: Applicability of Procurement Orders to Software Products
Background of the Make in India Policy
The Make in India initiative was launched by the Government of India on 25 September 2014 with the objective of transforming India into a global manufacturing and innovation hub. The policy aimed to promote domestic production, attract foreign investment, encourage technological capability, and reduce import dependency across key sectors.
While the initiative began as an economic vision, it required regulatory mechanisms to translate policy intent into enforceable compliance structures — particularly within government procurement. Public procurement accounts for a substantial portion of national expenditure, and the Government recognized that its own purchasing power could be strategically leveraged to promote domestic value addition.
To operationalize this, the Department for Promotion of Industry and Internal Trade (DPIIT), under the Ministry of Commerce and Industry, issued the Public Procurement (Preference to Make in India), Order 2017 — commonly referred to as the General Order.
The Legal Backbone: How Make in India Connects with GFR and DPIIT
Public procurement in India is governed by the General Financial Rules (GFR), 2017, issued by the Ministry of Finance. Rule 153 of the GFR empowers the Government to grant purchase preference to domestically manufactured goods and services.
The Public Procurement (Preference to Make in India) Order, 2017 derives its legal authority from these GFR provisions. In essence:
- GFR provides the statutory power framework.
- DPIIT issues operational procurement preference orders under that authority.
- Ministries and public sector entities implement those orders in their tenders.
Objective of the Public Procurement (Preference to Make in India) Order
- The Order introduced supplier classification based on Local Content: Class I (≥50%), Class II (>20% but <50%), and Non-Local (<20%).
- It also introduced a purchase preference mechanism where eligible Local Suppliers receive preferential allocation in government tenders.
- Nodal Ministries are empowered to issue sector-specific MII-PP Orders and prescribe higher minimum local content thresholds where necessary.
The Core Issue: Determining Local Content in Software Products
India is both a global hub for software development and a major consumer of software through government procurement. However, ambiguity persists regarding how local content should be computed for software products under the General Order.
Unlike hardware manufacturing, software development does not rely on component-based value addition and often involves offshore IP ownership, licensing models, SaaS platforms, and royalty structures.
The DPIIT formula defines Local Content as:
(Local Content %) = (Total Value – Imported Content) ÷ Total Value
While workable for goods, it becomes complex when applied to source code ownership, offshore R&D, SaaS hosting, and cross-border royalty payments.
Key Procurement Orders Relevant to Software
- DPIIT General Order – Provides base framework but no specific software methodology.
- MeitY Electronic Products Order – Primarily hardware-focused; not universally applicable to standalone software.
- Telecom Products Order – Covers telecom equipment and some software but does not define new LC metrics for general software.
- Cyber Security Products Order – Requires Indian IP ownership, royalty cap of 20%, and minimum 60% LC for notified products only.
The Practical Compliance Challenge
Software localization requires structured interpretation of IP ownership models, royalty and licensing agreements, R&D cost allocation, SaaS revenue models, and imported services including cloud hosting.
Incorrect classification may lead to tender disqualification, competitor challenges, or verification scrutiny under procurement regulations.
Why Choose YKG Global
YKG Global specializes in designing structured Local Content compliance frameworks for software and technology companies participating in government procurement.
Our expertise includes:
- Regulatory interpretation aligned with DPIIT and GFR mandates
- Intellectual property and R&D structuring assessment
- Software-specific cost attribution modelling
- Royalty flow and licensing impact evaluation
- Audit-defensible documentation frameworks
- Risk mitigation strategies for tender participation
We do not provide superficial percentage certifications. Instead, we build sustainable compliance architectures grounded in procurement law, ensuring long-term defensibility and competitive positioning.
Make in India is a structured procurement compliance regime grounded in the General Financial Rules and operationalized through DPIIT’s Public Procurement Order.
Software products require nuanced interpretation due to their intangible and IP-driven nature. Organizations participating in government procurement must adopt a legally defensible methodology for calculating local content in software.
Those who structure compliance correctly today will hold a decisive competitive advantage tomorrow.
Call us or fill out our contact form to schedule a consultation today.
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