Introduction

Government procurement, representing over $13 trillion in annual spending globally, serves as a crucial tool for economic development and industrial policy. The stark contrast between China’s coordinated, strategic approach to procurement and America’s fragmented, regulation-bound system illustrates fundamental differences in how these nations view the role of state purchasing power in economic development. While the United States primarily treats procurement as an administrative function focused on cost efficiency and process transparency, China leverages it as a strategic instrument for industrial development and technological advancement. This divergence in approaches has significant implications for economic competitiveness, technological innovation, and industrial capacity. Understanding these differences is crucial for policymakers seeking to address the challenges within U.S. procurement policies, particularly in relation to declining industrial competitiveness and technological leadership.

The Strategic Role of Government Procurement

Government procurement extends far beyond simple purchasing decisions. It shapes markets, drives innovation, and determines the viability of entire industries. Through procurement policies, governments can create assured markets for emerging technologies, support strategic industries, and influence technological standards. The scale of government purchasing—typically 10-15% of GDP in developed economies—makes it a powerful tool for economic development.

In today’s global economy, procurement policies play an increasingly critical role in technological competition and industrial development. Countries that effectively leverage government purchasing power can accelerate innovation, build industrial capabilities, and create competitive advantages in strategic sectors.

China’s Strategic Procurement System

China’s procurement system operates as an integral part of its broader economic strategy. The Chinese government explicitly uses procurement to advance national objectives, including technological development, industrial capacity building, and economic self-sufficiency. This approach is characterized by several key elements:

Under China’s system, procurement decisions align closely with national industrial policies like Made in China 2025. State purchasers prioritize domestic suppliers in strategic sectors, creating guaranteed markets for Chinese companies developing new technologies or capabilities. This approach has proved particularly effective in emerging industries like electric vehicles, renewable energy, and artificial intelligence.

The centralized nature of China’s system allows for rapid mobilization of resources and coordinated action across different levels of government. When China identifies a strategic priority—whether in semiconductors, electric vehicles, or telecommunications—procurement policies quickly align to support development in these sectors.

U.S. Procurement Framework

The U.S. procurement policies, by contrast, are governed by a complex web of regulations and competing priorities. The Federal Acquisition Regulation (FAR) system, while designed to ensure fairness and prevent corruption, often creates barriers to strategic purchasing decisions. Multiple agencies with different priorities and requirements fragment procurement authority, making it difficult to implement coordinated industrial policies.

Buy American provisions and similar requirements, while intended to support domestic industry, often prove inflexible and ineffective. The system’s focus on short-term cost savings and procedural compliance can work against longer-term strategic objectives like building domestic industrial capabilities or supporting emerging technologies.

Comparative Outcomes of Procurement Systems: China vs. U.S.

The divergent approaches to procurement have produced markedly different results. China has successfully used procurement to build world-leading positions in industries like solar panels, electric vehicle batteries, and 5G telecommunications equipment. These successes often build directly on government procurement support during early market development.

The U.S. system, while promoting competition and transparency, has struggled to support strategic industrial development effectively. American companies often face uncertainty about government demand, making it harder to invest in new capabilities or technologies. This has contributed to the erosion of domestic manufacturing capabilities in several critical sectors.

Strategic Industry Development

China’s procurement system demonstrates particular strength in supporting strategic industry development. When Chinese policymakers identify a priority sector, they can quickly mobilize government purchasing power to create markets and support domestic producers. This approach has proved especially effective in emerging technologies where early market support is crucial for development.

The U.S. system, despite various “Buy American” provisions and small business set-asides, lacks similar strategic coherence. Multiple agencies with different procurement rules and priorities make it difficult to implement coordinated industrial development strategies. The focus on competition and short-term cost savings can work against longer-term strategic objectives.

Innovation and Technology

The impact of procurement policies on innovation highlights another key difference between the two systems. China’s approach actively uses government purchasing to support technological development, creating markets for new products and technologies even before they are commercially viable. This reduces risk for Chinese companies investing in innovation and helps accelerate technology development.

U.S. procurement policies, while supporting innovation through programs like SBIR (Small Business Innovation Research), often lack the scale and consistency needed to drive technological development effectively. The fragmented nature of the American system makes it harder to coordinate support for emerging technologies across different agencies and programs.

Challenges Ahead for China-U.S Procurement Systems

Both systems face significant challenges moving forward. China’s procurement system, while effective at mobilizing resources, can lead to inefficiencies and overcapacity in some sectors. The emphasis on domestic suppliers may also reduce access to global innovation and expertise.

The U.S. system must find ways to maintain transparency and fairness while becoming more strategically effective. This includes developing better mechanisms for supporting critical industries and emerging technologies without sacrificing the benefits of competition and innovation.

Recommendations for Improving U.S. Procurement

Improving U.S. Procurement policies effectiveness requires several key reforms:

First, Congress should create mechanisms for coordinated procurement strategies in critical sectors, allowing for more effective support of strategic industries and technologies. This could include establishing a central authority to coordinate procurement policies across agencies in strategic sectors.

Second, procurement regulations should be modified to better balance competing priorities—maintaining transparency and fairness while enabling more strategic purchasing decisions. This might include creating special provisions for strategic technology procurement or expanding existing authorities for national security-related purchases.

Third, the U.S. needs better mechanisms for long-term procurement planning in strategic sectors. This would help companies make investment decisions and support the development of domestic industrial capabilities.

Conclusion

The contrast between Chinese and U.S procurement policies reflects deeper differences in how these nations approach economic development and industrial policy. China’s strategic, coordinated approach has proved more effective at supporting industrial development and technological advancement in targeted sectors. However, this comes with trade-offs in terms of market efficiency and innovation.

The United States does not need to—and should not—simply copy China’s procurement system. However, it must find ways to make its procurement policies more strategically effective while maintaining core values of transparency and fair competition. This will require significant reforms to current procedures and thinking about how government purchasing power can support national economic objectives.

Success in this effort will require careful balance between competing priorities—maintaining the benefits of market competition while enabling more strategic use of government procurement to support critical industries and technologies. The stakes in this effort are high, as procurement policy increasingly influences national economic security and technological leadership.

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Introduction

Foreign exchange regulations are a critical component of India’s economic framework, with the Reserve Bank of India (RBI) playing a central role in their implementation. This comprehensive guide examines RBI’s role under FEMA and how the RBI regulates and manages cross-border transactions under the Foreign Exchange Management Act (FEMA), providing clarity for businesses, individuals, and legal professionals navigating this complex regulatory landscape.

Understanding FEMA and RBI’s Regulatory Authority

The Foreign Exchange Management Act, 1999 (FEMA) replaced the more restrictive Foreign Exchange Regulation Act (FERA), signaling a paradigm shift from control to management of foreign exchange. This fundamental change reflects India’s evolving approach toward economic liberalization and global integration.

Legislative Framework and RBI’s Mandate

FEMA provides the RBI with extensive regulatory powers to oversee foreign exchange transactions in India. These powers are derived from several sections of the Reserve Bank of India Act, including sections 45J, 45JA, 45K, 45L, and 45MA. The RBI exercises these powers through a comprehensive framework of rules, regulations, and circulars that govern all aspects of foreign exchange transactions.

Key responsibilities entrusted to the RBI include:

• Formulating and implementing regulations to carry out FEMA provisions
• Issuing general and special directions to authorized entities dealing in foreign exchange
• Restricting, prohibiting, or regulating various categories of foreign exchange transactions
• Setting limits for different types of cross-border remittances and investments
• Ensuring timely repatriation of foreign exchange earned through exports and other sources

While the RBI possesses significant autonomy in managing foreign exchange, it often works in consultation with the Central Government, particularly when establishing rules for capital account transactions or when addressing matters of broader economic policy.

RBI as the Authorizing Authority for Forex Transactions

A fundamental aspect of FEMA is that all foreign exchange dealings must be conducted through an “Authorised Person” unless otherwise permitted by the Act. The RBI serves as the gatekeeper for this system.

Licensing and Authorization Framework

The RBI’s authorization process includes:

• Issuing licenses to banks and financial institutions to function as Authorized Dealers
• Granting permissions to money changers and other entities to handle specific foreign exchange operations
• Establishing operational guidelines for offshore banking units
• Setting conditions and limitations for each type of authorization

These authorizations are typically granted in writing and are subject to specific conditions determined by the RBI. The central bank retains the authority to revoke authorizations if it determines such action is in the public interest, if an authorized entity fails to comply with established conditions, or if FEMA provisions are violated.

Ongoing Compliance Requirements

Authorized entities must adhere to the RBI’s directions regarding foreign exchange transactions and must ensure that all transactions they facilitate comply with FEMA provisions. This creates a two-tier compliance structure where both the authorized entity and the individual or business conducting the transaction bear responsibility for regulatory adherence.

RBI’s Policy Formulation and Directional Role

The RBI plays a decisive role in shaping India’s foreign exchange policies, which extend beyond mere implementation of FEMA provisions to include broader economic objectives.

Cross-Border Transaction Facilitation

Recent initiatives by the RBI demonstrate its commitment to facilitating smoother cross-border transactions. In January 2025, the RBI updated FEMA regulations to encourage international transactions in Indian rupees (INR), allowing:

• Overseas branches of authorized dealer banks to open INR accounts for non-residents
• Non-residents to use balances in repatriable INR accounts for transactions with other non-residents
• Non-residents to utilize INR account balances for foreign investments, including FDI in non-debt instruments
• Indian exporters to open foreign currency accounts abroad for trade settlements

These amendments represent a significant step toward internationalizing the Indian rupee and expanding India’s economic connections globally.

Market Development Initiatives

The RBI has actively worked to develop India’s foreign exchange market through:

• Increasing the availability of derivative instruments like forward and swap contracts
• Introducing rupee-foreign currency swaps and other risk management tools
• Implementing regulatory frameworks for options, futures, and other sophisticated financial instruments
• Issuing regular notifications and circulars to clarify and update FEMA regulations

These efforts create a more robust and sophisticated foreign exchange market that can better serve India’s growing international economic engagement.

Market Oversight and Intervention Mechanisms

The RBI maintains active oversight of India’s foreign exchange market to ensure stability and prevent disruptive fluctuations.

Monitoring and Market Operations

The central bank employs various approaches to monitor and intervene in the forex market:

• Continuous surveillance of developments in both domestic and international financial markets
• Direct intervention through buying or selling of foreign currencies when necessary
• Indirect market operations through public sector banks acting as intermediaries
• Regulatory adjustments to influence market dynamics without direct intervention8

This multilayered approach allows the RBI to maintain equilibrium in the foreign exchange market while accommodating legitimate economic activities.

RBI’s Approach to FEMA Violations

The RBI’s role extends to addressing contraventions of FEMA provisions, though with a perspective that differs significantly from the previous FERA regime’s punitive approach.

Compounding and Remediation

The RBI has the authority to compound (settle) contraventions committed under Section 13 of FEMA. This mechanism allows for the resolution of violations without necessarily resorting to lengthy enforcement proceedings.

Post-facto Approval Mechanism

A landmark Supreme Court judgment in Vijay Karia v. Prysmian Cavi E Sistemi SRL (2020) clarified the RBI’s power to grant post-facto approval for actions that technically breach FEMA regulations. The Court held that:

• FEMA violations can potentially be condoned through RBI’s post-facto approval
• A breach of FEMA does not automatically render a transaction void
• FEMA is based on a policy of managing foreign exchange, unlike the previous FERA which focused on policing it
• FEMA violations cannot be considered violations of the “fundamental policy of Indian law”

This judicial interpretation reflects the more facilitative approach of FEMA compared to its predecessor, recognizing that technical violations need not invalidate legitimate economic activities.

Regulatory Coordination

While the Enforcement Directorate (ED) is primarily responsible for investigating FEMA contraventions, the RBI’s regulatory perspective remains paramount in the overall framework. The Supreme Court has noted that the RBI alone has the authority to determine whether FEMA requirements have been fulfilled.

Even when foreign arbitral awards are enforced despite potential FEMA violations, the actual outflow of funds typically requires RBI approval, maintaining the central bank’s ultimate regulatory authority over foreign exchange.

Conclusion: RBI’s Evolving Role in India’s Economic Framework

The RBI’s role under FEMA represents a careful balance between regulatory oversight and economic facilitation. By shifting from the strict control paradigm of FERA to the management approach under FEMA, India has created a more flexible foreign exchange regime that supports international trade and investment while safeguarding the nation’s economic interests.

The RBI continues to adapt its regulatory framework to meet evolving global economic challenges, as evidenced by recent amendments to encourage cross-border rupee transactions and facilitate derivatives trading. These ongoing refinements demonstrate the dynamic nature of India’s approach to foreign exchange management under RBI’s stewardship.

For businesses and individuals engaging in cross-border transactions, understanding the RBI’s role and approaches under FEMA is essential for both compliance and effective financial planning in an increasingly interconnected global economy.

Article by: Aditya Bhatt

Association: Bhatt and Joshi

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Introduction

In September 2014, the Indian government established the “Make in India” program which sought to expand the operations of the Indian manufacturing sector while simultaneously gaining Foreign Direct Investments (FDI) and opening new avenues for jobs to promote economic advancement. As such, this program was wide in scope, and over the past decade has achieved many milestones while also facing a myriad of legal obstacles. This article examines the initiative’s regulatory framework, achievements, and challenges, and apprehends their relevant laws, case laws, and landmark judgments. 

The Genesis of Make in India

The Make in India campaign was designed towards the objective of elevating India to be a preferred global manufacturing country, alongside improving the ease of doing business within India. The government picked out 25 sectors such as aviation, electronics, textiles, and automobiles for which India could achieve significant growth. Also, this initiative set out to alleviate red tape, modernize business systems, as well as improve underlying physical infrastructure.

There was always a legal underpinning to the program, which was designed to aid in industrial growth expansion. Policies like the Foreign Investment Policy, Special Economic Zones (SEZ) Act, and other subsector policies were formulated or modified to meet the requirements of the program. Legal reforms by the government created an emphasis on the need for a business-friendly environment, maintenance, and enhancement.

The timing of Make in India was critical as it coincided with the time when India wanted to pull out of the economically stagnant phase. The initiative aimed at industrial development along with providing solutions to rising unemployment and regional inequality. Integration of economic growth within institutional frameworks and reforms made the undertaking one of the most comprehensive in modern India and one of the most ambitious campaigns India has seen.

Legal Instruments Enabling Make in India

Everything centred around Make in India is completely dependent on there being a favourable legal and regulatory environment to make it work. Some of the important ones are listed below: 

Foreign Direct Investment (FDI) Policy:  The FDI policies were the most important parts of the make-in-India strategy. The government liberalized FDI restrictions on many industries like defence, aviation, retail and insurance. For example, the defence sector witnessed FDI caps increase from 26 per cent to 74 per cent under the automatic route with higher limits necessitating government scrutiny. These policies intended to bring in foreign investors and their latest technology to India. This was further aided by steps like loosening the controls on single-branded retail and allowing unrestricted foreign investment in contract manufacturing.

Insolvency and Bankruptcy Code (IBC), 2016: The IBC was introduced as a revolutionary policy aimed at dealing with failure for businesses as well as providing better exit routes for companies. The code brought huge improvements to India’s standing in the World Bank Ease of Doing Business Index as it simplified the process of corporate insolvency for a company. It sought to ensure that there was no uncertainty for a business seeking to invest in India on how long it would take to wind up and sell its assets.

Goods and Services Tax or GST: GST is considered an additional progressive measure under the Make in India scheme and was instituted in 2017. It replaced a complicated system of indirect taxes with an integrated tax system which minimized the cascading of taxes as well as enhanced ease of doing business. GST eliminated inefficiencies in the tax system and promoted manufacturing while lowering costs for businesses and consumers.

Reforms in Labor Laws: India’s labour laws have historically been viewed as uncoordinated and non-uniform. The government combined 29 Central Labor Laws into four Labor Codes: The Code of Wages, the Industrial Relations Code, the Social Security Code, and the Occupational Safety, Health, and Working Conditions Code. Such changes were intended to ease compliances and improve investment appeal. Such simplification also served to reduce foreign investor concerns who frequently named India’s labor policies as a major hurdle for doing business.

Act of 2005 regarding Special Economic Zone: Before the Make in India Initiative, Special Economic Zones, also referred to as SEZs, were already in existence but they were marketed as part of the campaign designed to increase foreign investment and the growth of exports. This scheme used the SEZ structure to offer tax allowances, expedited clearance of customs, and developed supportive infrastructure. SEZs became the focus of industrial activity, encouraging several states to compete in creating world-class facilities capable of attracting both foreign and domestic investors.

Like in the earlier stages of Make in India, The Production Linked Incentive (PLI) Scheme was introduced to target financial stimulus to increase manufacturing capabilities in key sectors including electronics, renewables, pharmaceuticals, and so on. The desired outcome was to reinforce India’s self-sufficiency while turning it into a ‘world factory.’ Another goal was to promote the adoption of sophisticated technology and advanced manufacturing techniques.

Achievements of Make in India

Make in India has reached remarkable milestones in the past decade. Manufacturing industries use up more GDP in comparison to India previously, and India today is one of the foremost countries to receive FDI. These gains have come from a mix of policy changes, infrastructure improvements, and involvement from the private sector.

Increase in FDI: India saw unprecedented FDI bounty during the Make in India period. Telecommunication, services, computer software, and hardware industries were the most funded. Government documents report that FDI increased from 36 billion in 2013-14 to more than 80 billion in 2020-21. This was a reflection of how much faith the world had in India’s economic policies and the potential of becoming a manufacturing hub.

Infrastructure Development: The initiative made infrastructure development a priority via Bharatmala and Sagarmala, which sought to enhance road and port infrastructure and connectivity. The infrastructure DFCs and smart city initiatives also supported the goals of the program. Improved infrastructure helped lower logistic expenses and enhanced supply chain logistics as well, giving a global edge to Indian products.

Sectoral Transformation Stealth: Several sectors saw extraordinary growth with the onset of Make in India. The automotive industry, for example, was a factor in India becoming a net exporter of two-wheelers and passenger vehicles. The electronics sector also grew on account of considerable investment in mobile phone manufacturing because of the PLI schemes. With the establishment of manufacturing plants from tech giants like Apple and Samsung, India emerged as one of the largest producers of smartphones. 

Eased the Rank of Indian Business: India’s rank in the World Bank’s Ease of Doing Business Index Improved from 142 in 2014 to 63 in 2019, which marked the success of regulatory reforms. A reduction in business procedural complexity, digitization of governance and compliance functions, and introduction of single window clearances were instrumental. These reforms attracted local as well as foreign business personnel because they lowered both the cost and time invested in commencing business activities in India. 

Make in India also shifted focus towards renewable resources. The Indian renewable energy sector also made considerable progress with investments pouring into solar and wind projects. The government’s aim to reach 450GW of renewable energy by 2030 was in line with the campaign’s objective to encourage green manufacturing.

Legal Challenges Faced by Make in India

Make in India has accomplished several things, but it still had to encounter a number of legal and policy problems. These challenges encapsulate the difficulty of executing such a grand program: 

Land Acquisition Laws: The issue of acquiring land for constructing industrial projects is highly controversial. The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act of 2013 put into place difficult measures like more generous allowances and consent prerequisites. Although these measures were intended to favour landowners, they frequently caused delays to projects and reduced the desire of investors to invest. Proposed changes to the Act were met with severe opposition, thus the law stands as is. This continues to be a significant obstacle for many large-scale industrial undertakings. 

Environmental Clearances: Obtaining environmental clearances is yet another large concern. Projects that fall under the Make in India category tend to get stalled due to all the logistical red tape. The National Green Tribunal (NGT) has quite often been involved when there is a lack of compliance with environmental standards since there has always been tension between the need for development and the need for sustainability. The integrative challenge is how to achieve industrial development alongside environmental protection.

Enforcement of Contracts: Contract enforcement is one of the weakest links in India’s legal system. Although changes such as the Commercial Courts Act, of 2015 seek to improve the resolution of commercial disputes, the judicial backlog remains one of the most important problems. The slow pace of resolution of disputes reduces the confidence of investors and affects business activity. Even with the improvements in ease of doing business, contract enforcement continues to be a sore point for many investors.

Intellectual Property Rights (IPR): Protection of intellectual property is important for encouraging innovation and attracting foreign investments. India has made some progress in the building of its IPR fortress, but issues about enforcement and protracted litigation remain. Instances of patent violations and counterfeit products make it difficult for investors to have confidence in the IPR framework of India.

Implementation of Labor Laws: While the new labour codes were meant to simplify compliance, their implementation has not been as swift. Some critics believe that the reforms will result in the weakening of the protections extended to workers, and therefore, will be opposed by labour unions. Effective implementation of these laws while taking into consideration the concerns of different stakeholders is a challenging task.

Legal Activism and Precedents

The judicial branch came into action to resolve disputes and Make in India-appropriated laws. The following cases illustrate the point. 

Vodafone International Holdings BV v. Union of India (2012): In this case, the Supreme Court of India accepted Vodafone’s argument that indirect transfers of Indian assets were not subject to ex-post Indian taxation laws. The ruling suggested that foreign investment is contingent on the precise and certain articulation of tax law, particularly its avoidance of ex-post taxation.

Essar Steel Insolvency Case (2019): The Supreme Court resolved the Essar Steel case confirming the pre-eminence of the financial creditor under the IBC. This decision aided consolidation of the much-required clarity on insolvency resolution processes. The judgment increased the degree of investor confidence in India’s insolvency regime and consolidated the perception of judicial activism in the Indian economy concerning expeditious adjudication of disputes.

Sterlite Copper Plant Case: The shutting down of Vedanta’s Sterlite copper plant at Tamil Nadu buttressed the problem of balancing the need for industrial development with environmental protection. The case demonstrated how the courts maintain technical compliance with the law and public expectations. The case also demonstrated the seriousness required in managing environmental issues in the country.

Monsanto Technology LLC v. Nuziveedu Seeds Ltd. (2019): This case included aspects of intellectual property law and the licensing of certain genetically modified seeds. The judgment from the Delhi High Court raised the concern of how agricultural IPR protection could be implemented in an overly protective manner. It also highlighted the challenges of harmonizing global IPR issues with India’s development and social problems. 

Future Projections and Suggestions

In the second decade of Make In India, the government has to remedy the efforts which are still incomplete. Easing processes for acquiring land, improving environmental regulation, and bettering contract laws are all vital for the continuation of the program. Additionally, the Make In India initiative would greatly benefit from enhanced innovation through better IPR enforcement, better implementation of labour laws, and increased automation of regulatory functions. The achievement of these goals will require the interface of multiple actors, including the private sector, judiciary, and civil society.

The Make in India initiative is redefining the manufacturing domain and making India a potential economic superpower. That said, the legal issues it has encountered illustrate the difficulties of executing such an all-encompassing plan in a varied, fast-paced country like India. With proper resolution to those issues and consolidation of the successes, Make in India embodies India’s growth potential for years to come.

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