Make in India class 1 vs class 2: purchase preference

The short answer: you’re Class-I if at least 50% of the value you supply is Indian, Class-II if you’re between 20% and 50%, and treated as non-local below that. Class-I is the one that matters. It’s the only category with the right to match the lowest price and take the order.

A supplier I know lost a tender on price by a hair, then watched the contract go to a firm that had quoted higher. He thought it was a mistake. It wasn’t. The winner was a Class-I local supplier, the tender carried a Make in India purchase preference, and that firm was offered the chance to match the lowest price and take the order. He’d never read the MII clause closely, and it cost him the bid.

That’s the policy I want to unpack here. It decides outcomes far more often than most suppliers realise, and which side of it you’re on is something you can usually work out in a few minutes.

What the Make in India purchase preference does

Formally, this is the Public Procurement (Preference to Make in India) Order, issued and amended by DPIIT. The intent is plain: government buyers should prefer suppliers whose goods and services carry genuine Indian local content over those who simply import and resell. It changes who gets preference when prices are close. Below certain values, it also changes who’s allowed to bid in the first place.

The mechanism rests on one number: local content, meaning the share of the value of what you supply that’s actually Indian. Material, labour, and overheads that originate in India count. The imported portion doesn’t. Where you land on that number sorts you into one of two categories, and the categories are the whole game.

I touched on this briefly when I wrote about EMD, ePBG, MII and MSE. Here I want to go properly into the Class-I and Class-II split, because that’s where suppliers either gain an edge or lose one without understanding why.

Who the order covers, and who can bid at all

The current text is DPIIT’s revised order dated 19 July 2024 (No. P-45021/2/2017-PP (BE-II)-Part(4)Vol.II). It replaced the 16 September 2020 revision and kept the same basic structure. The points that decide whether it touches your bid:

• It binds central ministries and departments, their attached and subordinate offices, autonomous bodies they control, and government companies. A state department’s tender may follow its own purchase rules, so read the clause rather than assume.
• Small purchases are exempt: anything with an estimated value under ₹5 lakh is outside the order, and buyers aren’t allowed to split a purchase to get under that line (para 4).
• Spares, consumables for closed systems, and maintenance contracts with the OEM are also exempt (para 4A, added in 2024).
• Non-local suppliers usually can’t bid. Only Class-I and Class-II suppliers are eligible, unless the buyer issues a global tender enquiry. Under GFR Rule 161(iv), a global tender enquiry below ₹200 crore needs special approval (para 3(b)).
• Some items are Class-I only. Where the nodal ministry has notified sufficient local capacity and competition for an item, only Class-I suppliers can bid, at any value (para 3(a)).

Separately from Make in India, a bidder from a country that shares a land border with India can bid only after registering with the competent authority under GFR Rule 144(xi). That comes from the Department of Expenditure’s Order (Public Procurement No. 1) of 23 July 2020, now read with OM F.No.7/10/2021-PPD of 23 February 2023. Tenders commonly ask every bidder to sign a declaration on this, Indian firms included.

Class-I vs Class-II: the local content split

The split is based entirely on local content. The default thresholds, from para 5 of the DPIIT order:

	Class-I	Class-II	Non-local
Local content	At least 50%	At least 20%, below 50%	Below 20%
Can bid in a normal (non-global) tender?	Yes	Yes	No
Purchase preference at award	Yes: can match L1 if within 20%	None	None
Where it helps	Close tenders where margins are tight	Gets you into the tender, not ahead in it	Only global tender enquiries

Class-II local suppliers get no purchase preference in any procurement; the order says so in those words (para 3A(d)). An earlier version of this post said Class-II got a limited preference, and that was wrong. The value of Class-II is that it keeps you eligible to bid when non-local suppliers are shut out.

One caution on the numbers. 50% and 20% are the defaults, but they aren’t universal. A nodal ministry can notify a higher minimum for its own items, and the order allows only higher, not lower. The procuring department can still reduce it in a particular case, with its minister’s written approval (para 14). Some tender documents also word Class-II as “more than 20%”.

So don’t memorise two numbers and bid on faith. The one that governs your bid is printed in the tender, and the order requires it to be stated there and not changed mid-tender (para 7). Read it every time, the same way you’d read the rest of the tender document.

How local content is actually calculated

Unless the nodal ministry prescribes a different method, the order defines local content as:

(total value of the item, excluding net domestic indirect taxes − value of imported content, including all customs duties) ÷ total value × 100

The 2024 revision added explanatory notes that close the usual loopholes:

• Imported items you buy from an Indian reseller or distributor count as imported, not local.
• Licence fees, royalties and technical charges paid outside India are excluded.
• Repackaged, refurbished or rebranded imported products are treated as resold imports and excluded.
• On a contract for several items, local content is the weighted average across all of them.
• PLI-scheme manufacturers who have received the incentive for an item are treated as deemed Class-II for it (unless they meet Class-I on their own), for the period the PLI ministry notifies (para 2A).

A worked calculation

Say you sell a panel at ₹1,00,000 per unit before GST. Here’s the cost structure:

Component	Value	Counts as
Imported controller, landed with customs duty	₹35,000	Imported
Imported sensors bought from a Mumbai distributor	₹10,000	Imported (bought locally, still imported)
Royalty paid to the foreign licensor	₹5,000	Excluded
Indian steel, wiring, labour, overheads, margin	₹50,000	Local

Local content = (1,00,000 − 35,000 − 10,000 − 5,000) ÷ 1,00,000 = 50%. That’s Class-I with nothing to spare. Before the 2024 notes, plenty of suppliers would have counted the distributor-bought sensors as Indian and reported 60%. Under the current rules, that 60% claim is a false declaration.

Nobody hands you a certificate — you self-certify

Here’s the part that trips suppliers up. Nobody issues a Class-I certificate. When you bid, you declare your local content percentage and the category you’re claiming, and you certify it yourself, along with the location(s) where the value was added (para 9(a)).

That self-certification is exactly why the policy carries teeth on the back end. The declaration is auditable. A buyer, or a complaint from a competitor, can trigger verification of what you claimed. Nodal ministries can set up committees with internal and external experts to check self-declarations and auditor certificates, both at random and on complaints. Ministries and buyers can also charge a fee for filing a complaint.

The ₹10 crore line

Above ₹10 crore, a bare declaration isn’t enough. Para 9(b) requires a certificate giving the local content percentage:

Who you are	Who signs the certificate
A company	Your statutory auditor or cost auditor
Anyone else (proprietorship, partnership, LLP)	A practising cost accountant or practising chartered accountant

The 2024 revision added a second check. On contracts above ₹10 crore, you must also give a local content certificate from a practising cost or chartered accountant while the contract is being executed. If that isn’t practical, the buyer can accept it after completion, within a time limit it sets (para 9(c)).

What a false or failed claim costs

The penalties sit in para 9 of the order and in the General Financial Rules:

• A false declaration breaches the Code of Integrity under GFR Rule 175(1)(i)(h). The bidder, or its successors, can be debarred for up to two years under Rule 151(iii).
• While debarred by one buyer for violating the order, you can’t claim Make in India preference with any other buyer either. The order has the Department of Expenditure maintain and publish lists of debarred suppliers.
• If a contract above ₹10 crore falls short and you drop from Class-I to Class-II or non-local, or from Class-II to non-local, a penalty of up to 10% of the contract value can be imposed. The contract itself isn’t terminated for this.

Any one of those costs far more than losing a single bid to disqualification.

So the discipline is simple. Claim the category you can actually defend with documents, not the one you wish you were in. A Class-I claim you can’t support is worse than an honest Class-II claim, because the downside is being shut out of the market, not just this one order.

At award, Class-I gets a second move

This is the mechanic that decided the bid I opened with, and it’s worth being precise about.

When bids are opened and the lowest price (L1) comes from a supplier who isn’t a Class-I local supplier, the lowest Class-I bidder within the margin of purchase preference is invited to match the L1 price. That margin is 20% (para 6), unless the department has reduced it with ministerial approval. If the Class-I bidder matches, the order splits by type:

• Divisible orders (goods or works that can be split by quantity): L1 keeps 50% of the quantity, and the Class-I supplier gets the other 50% at the L1 price (para 3A(b)).
• Non-divisible orders, and services evaluated on price alone: the Class-I supplier who matches takes the whole contract (para 3A(c)).
• If L1 is already Class-I, L1 gets everything, and nobody else is invited.

Read that twice if you import. It means a Class-I local supplier doesn’t have to be the cheapest to win. They have to be close enough, inside the 20% band, and willing to match. The genuinely local manufacturer gets a second move that the importer never sees.

A Class-I supplier can win from up to 20% above the lowest price, as long as it agrees to drop to that price.

Tenders that award to several bidders work a little differently (para 3B). If Class-I suppliers don’t already qualify for at least 50% of the quantity, preference goes to Class-I bidders within the 20% band until, together, they cover at least half. The direction is the same: real local content buys you a preference at the decisive moment, and without it, that same preference works against you.

The 20% margin in numbers: a worked example

Here’s how the order’s procedure plays out on a single tender. A department buys 1,000 units of a divisible item. Because it isn’t a global tender, every qualified bidder is Class-I or Class-II. The 20% margin puts the cut-off at ₹120 per unit.

Bidder	Category	Quote per unit	Within 20% of L1 (up to ₹120)?	Outcome
P	Class-II	₹100 (L1)	—	Keeps 500 units at ₹100
Q	Class-II	₹104	Yes, but Class-II	Nothing
R	Class-I	₹112	Yes	Invited first to match ₹100 for 500 units
S	Class-I	₹118	Yes	Invited next if R declines or takes less
T	Class-I	₹124	No	Nothing

How it resolves

1. P is L1 but not Class-I, so P gets 50% of the quantity: 500 units at ₹100.
2. R, the lowest Class-I bidder inside the band, is invited to supply the other 500 at ₹100. R has to give up ₹12 a unit to take it.
3. Say R accepts only 300 units. S is then invited to match ₹100 for the remaining 200.
4. If S declines too, the leftover 200 units can go back to P.
5. T is Class-I but outside the band, so T never gets the call. Q quoted second-lowest and still gets nothing, because Class-II carries no preference.

If the same item were non-divisible, R would be invited to match ₹100 for the whole contract, then S if R declined. If neither matched, the contract could go to P.

What the example should change in your pricing

If you’re Class-I, the price you end up supplying at is L1’s, whatever you quoted. Inside the band, a lower quote only decides who gets invited first: R at ₹112 gets the call before S at ₹118. Outside it, like T at ₹124, you get nothing. So before you bid, work out whether L1’s likely price still leaves you a margin, because that’s the number you’d be agreeing to.

What tightened in 2024: imports get squeezed

The tightening came from the DPIIT revision dated 19 July 2024, effective immediately. Its effect showed up across tender documents over 2025, and buyers such as IIT (BHU) issuing compliance notices that January. I couldn’t find a further DPIIT amendment issued in 2025. The revision tightened what’s allowed to count as local content, specifically to close the gaps suppliers were using to dress up imports as Indian.

It pushed on three fronts:

• Resold imports were squeezed out. Buying a finished foreign product, or an imported part from an Indian distributor, doesn’t generate local content, however the invoice is structured. Buyers can now ask for the cost of locally sourced imported items, with a break-up of royalties and technical fees paid abroad.
• Refurbished, repackaged and rebranded imported goods are now explicitly excluded. The order defines each one. Refurbishing is repair or reconditioning, where “no new goods come into existence”. Repackaging is moving bulk imports into smaller packs. Rebranding is relabelling or changing the logo or make on an imported product.
• Origin certification at the OEM level got firmer. For items sold by the bidder as a reseller, the original equipment manufacturer’s certificate of country of origin has to be submitted. The trail no longer stops at the trader who sold it last.

The same revision added mandatory Class-I sourcing of notified items inside system integrator, EPC, turnkey and service contracts (para 3.1). It also added the deemed Class-II status for PLI manufacturers mentioned above. The space for treating an import as local content is narrower than it was, and nodal ministries can keep raising their minimums on annual review (para 12). If your Class-I claim leans on a generous reading of where your product really comes from, treat that as a risk, not a strength.

Declaring local content on GeM, and where claims fall apart

GeM has its own plumbing for this. The order asks GeM to mark items that meet minimum local content, to compare prices with and without the preference automatically, and to get the local supplier’s consent before applying it (para 8).

The steps on GeM

1. List the product with its country of origin and local content. Since June 2020, GeM has required country of origin on every new product listing, alongside the local content percentage. Buyers can filter for products meeting the 50% Class-I minimum.
2. Check the bid’s MII field. The bid document shows whether “MII Purchase Preference” applies and the minimum local content it uses for Class-I.
3. Upload the OEM certificate with the bid. The standard GeM bid clause asks for a certificate from the OEM giving the local content percentage and the locations of value addition. It says no purchase preference will be granted without it.
4. Above ₹10 crore, get it certified. The same clause requires the declaration to be certified by the statutory or cost auditor if the OEM is a company, or by a practising cost accountant or chartered accountant otherwise.
5. Sign the land-border declaration. GeM bids carry the Rule 144(xi) restriction through GTC clause 26, and you undertake compliance when you bid.

Common reasons a claim gets rejected or ignored

Each of these follows from the rules above:

• No OEM certificate uploaded, so the preference is simply not applied.
• A percentage declared without the location(s) of value addition.
• A bid above ₹10 crore backed only by self-certification.
• Imported parts bought from an Indian distributor counted as local.
• A reseller claiming Class-I without the OEM’s country-of-origin certificate.
• One item’s local content quoted on a multi-item bid instead of the weighted average.
• The default 50% assumed where the nodal ministry has notified a higher figure for the item.
• A Class-I quote outside the 20% band, which never gets the match invitation.

Working out which side you’re on

Be honest with yourself before the buyer’s auditor is honest for you. Roughly:

• You manufacture or substantially assemble in India, and your Indian value addition clears the threshold the tender states (commonly 50%)? You’re likely Class-I, and the purchase preference is one of the best advantages you have. Claim it, and keep the documents to back it.
• You do real Indian value addition but land between the thresholds (commonly 20% to 50%)? You’re Class-II. That keeps you eligible to bid, but it gives you no edge at award.
• You import and resell with little Indian value added? You’re effectively non-local. On most central tenders below ₹200 crore you can’t bid at all, and on any tender carrying this preference you should assume the clause will be used against you.

When MSE preference applies too

This sits alongside your other eligibility levers, not separate from them. The Public Procurement Policy for MSEs Order 2012 gives its own preference: a registered micro or small enterprise quoting within 15% of a non-MSE L1 can match L1 and supply up to 25% of the total tendered value. Two things about how the two interact on GeM:

• The standard GeM clause says that if the buyer has selected the MSE purchase preference clause, it takes precedence over the MII clause.
• The MSE preference is only for the manufacturer of the goods, or the actual provider of the service. Traders are excluded, so an MSE reseller can’t lean on it any more than on Class-I status.

If you’re also a micro or small enterprise, re-read the revised MSME classification to make sure you’re claiming everything you’re entitled to in the same bid.

The MII clause isn’t boilerplate to skim past. On a close tender it’s often the single line that decides who supplies. Read it on every bid, know your local content number cold, and claim the category you can defend.

And knowing which side of MII you’re on only helps if you reach the right tenders early enough to prepare a clean, properly certified bid. That’s the part we handle at TrackTender: relevant tenders for your state and category reach you on day one, with time to get your local content declaration and supporting documents in order, instead of scrambling on day thirteen.