Make in India, Class II Local Supplier

A Class II Local Supplier is a bidder whose goods carry a domestic (local) content of at least 20 percent but less than 50 percent, as defined under the Public Procurement (Preference to Make in India) Order, 2017. Class II suppliers receive a lower tier of purchase preference compared to Class I suppliers, and their preference rights are triggered only when no Class I supplier has matched the L1 price.

What is a Class II Local Supplier in government procurement?

The PPP-MII Order, 2017 creates a two-tier preference structure based on local content percentage. Class I is for 50 percent and above; Class II covers the band between 20 and 49 percent. Firms with less than 20 percent local content are classified as non-local suppliers and receive no preference.

When a tender is evaluated, the preference hierarchy works as: Class I suppliers are offered price matching first. If a Class I supplier matches L1, the order is settled. Only if no Class I supplier is available or willing to match does Class II get a price-matching opportunity, and then only if the L1 is a non-local supplier. A Class II supplier cannot override a Class I supplier, regardless of price.

The local content for Class II is calculated the same way as for Class I: subtract the value of imported inputs from the ex-factory price, divide by ex-factory price, express as a percentage. The supplier self-certifies this, and the same auditor certification threshold (above Rs 10 crore) applies.

Many product categories that were once dominated by importers are in the Class II zone as Indian manufacturers scale up local production. The PPP-MII framework is intended to push these firms toward the 50 percent threshold over time by making Class I status commercially valuable.

Certain strategic sectors (defence, electronics, medical devices, solar panels) have specific notifications with different local content thresholds and definitions. In some sectors, the Class II threshold may differ from the generic 20 percent floor.

Why it matters for bidders

Class II status is valuable for companies in transition: those that have started domestic manufacturing but have not yet reached the 50 percent local content needed for Class I. Even Class II preference provides a fallback benefit if Class I suppliers are absent from a particular tender. In commodity tenders where international or low-local-content firms dominate, a Class II Indian supplier may find more frequent opportunities to be offered price matching.

For companies building a government sales strategy, Class II status should be seen as a stepping stone, not a permanent position. The strategic goal is to invest in domestic supply chain depth, localising more components, switching to domestic raw materials, and expanding Indian manufacturing operations, to reach Class I status and unlock the full preference benefit.

Self-certification is legally binding. Suppliers who claim Class II status without genuinely meeting the 20 percent local content threshold face the same debarment and penalty risks as false Class I claimants.

Example

An HVAC equipment manufacturer assembles air handling units in India but imports compressors, heat exchangers, and electronic control boards, which together account for 65 percent of the unit's value. Indian-made components (sheet metal housing, insulation, wiring, local labour) represent 35 percent. The manufacturer qualifies as a Class II supplier. In an AIIMS hospital tender, two Class I suppliers also bid. All Class I price-matching opportunities are exercised first. Because one Class I supplier agrees to match L1, the HVAC manufacturer's Class II status provides no additional benefit in that tender. In a different tender where no Class I suppliers participate, the manufacturer gets the price-matching opportunity as the best-placed Class II bidder.

Key rules and thresholds

• Local content band: 20% to less than 50% of ex-factory value.
• Preference priority: Below Class I; triggered only if Class I matching fails.
• Self-certification: Required in bid; statutory auditor sign-off required above Rs 10 crore.
• Applies to: All central government procurement of goods; sector-specific rules may vary.
• Non-local supplier: A firm with less than 20% local content; gets no preference.