Local Content Requirement

Local Content Requirement (LCR) in Indian government procurement refers to the minimum share of a product's value that must originate from domestic production, manufacturing, or assembly to qualify the supplier for purchase preference under the Make in India Order. The LCR is expressed as a percentage of the ex-factory price of the finished good, with different thresholds defining Class I (50 percent or more) and Class II (20 to 49 percent) supplier status.

What is Local Content Requirement in government procurement?

The Public Procurement (Preference to Make in India) Order, 2017, and its sector-specific amendments establish the LCR framework. Local content is defined as the portion of the product's value that is not imported, it includes raw materials sourced within India, components manufactured domestically, sub-assemblies produced in India, and all value-added activities (design, engineering, assembly, testing, quality control) performed on Indian soil by Indian workers.

The LCR calculation formula is: Local Content (%) = [(Total Value of Item - Value of Imported Content) / Total Value of Item] × 100. The "total value of item" is the ex-factory price (the price at which the item leaves the factory gate, excluding taxes, freight, and duties). The "value of imported content" covers all components, sub-assemblies, raw materials, and inputs that are directly imported or procured from importers, valued at the customs duty-paid price.

Different sectors have different LCR definitions. In defence procurement under the Defence Acquisition Procedure (DAP 2020), "indigenous content" is defined with specific inclusions and exclusions that differ from the generic PPP-MII calculation. In solar energy, "domestic content" is defined sector-specifically by the Ministry of New and Renewable Energy. Medical devices, railway equipment, and electronics each have their own sectoral LCR frameworks.

Why it matters for bidders

LCR determines which class of supplier preference a bidder can claim. The difference between 48 percent and 52 percent local content is the difference between Class II (limited preference) and Class I (strongest preference). This makes LCR a strategic engineering and sourcing decision, not just a compliance calculation.

Companies that actively track their LCR can identify which specific components or processes, if localised, would push them from Class II to Class I. This analysis often reveals that switching one or two imported inputs to domestically available alternatives is both commercially viable and strategically rewarding.

LCR must be calculated product-by-product, not at the company level. A manufacturer that makes five product lines may be Class I for two and Class II for three. Each bid must carry the correct LCR declaration for the specific product being offered.

False declaration of local content is a serious offence. The PPP-MII Order mandates that a supplier found to have made a false declaration must be debarred from government procurement for up to two years and may face financial penalties equivalent to the order value.

Example

A transformer manufacturer wants to determine its LCR for a 33kV distribution transformer. The ex-factory price per unit is Rs 4.8 lakh. It imports CRGO steel laminations worth Rs 1.6 lakh per unit and some bushing components worth Rs 0.3 lakh. All other inputs (copper windings, tank fabrication, oil, winding, assembly, testing) are sourced and executed in India. Imported content = Rs 1.9 lakh. Local content = (4.8 - 1.9) / 4.8 = 60.4 percent. The manufacturer qualifies as a Class I local supplier and certifies this in its bid.

Key rules and thresholds

• Class I threshold: 50% or more local content.
• Class II threshold: 20% to less than 49% local content.
• Non-local: Below 20% local content; no purchase preference.
• Calculation basis: Ex-factory price; imported content valued at CIF/customs paid price.
• Certification: Self-certification mandatory; statutory auditor certification required for contracts above Rs 10 crore.
• Legal basis: PPP-MII Order, 2017; sector-specific amendments by respective nodal ministries.