Government Procurement Systems in India: Moving towards increased transparency
Abhijit Das, Head, Centre for WTO StudiesIIFT, New Delhi
Structure of presentation
• Economic gains from a transparent and open procurement regime
• Concerns for preserving policy space in government procurement
• Estimates of the size of government procurement in India • Procurement systems in India and changes over the past
few years, including the Public Procurement Bill • Why is India not a signatory to WTO's Government
Procurement Agreement and why it has refrained from taking market access commitments in its FTAs.
Scope of procurement
• Purchase by government departments and agencies of:Supplies/ goods (commodities, manufactured
items)ServicesConstruction and public works
• May also include:Purchases by state-controlled corporations
Why is there interest in procurement regimes • Public procurement involves significant
proportion of Gross Domestic Product (5-15 % or more in most countries)
• OECD (2001) has estimated that 7.1 % of world GDP as potentially contestable procurement market worldwide
• Procurement is an essential function of government, vital to the delivery of socially important goods and services.
• Major implications for development; effectiveness of government
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Benefits of a transparent procurement regime
• More potential suppliers resulting in: more competition lower prices better quality goods and services• Access to broader pool of talent/technology• Likely increase in access to foreign markets by
domestic producers• Dearedorff and Stern (1979) argue that welfare gains
from liberalising government procurement under Tokyo Round would exceed gains from tariff liberalisation for developed countries.
…but concerns remain
• Administrative cost of implementation may be high Notification obligations on procurement statistics Bid challenge procedures• Socio-economic costs arising from removal of preferential
treatment to domestic suppliers – reduction in production and employment.
• Supply side constraints in competing for government procurement in developed countries’ markets- reduces the possibility of building local industries and service suppliers based on exports.
Policy space curtailed Even US has used government procurement as a tool for
stimulating its economy
Size of GP India’s market
• Estimates for size of India’s GPM vary• Srivastava (1999): 3.6% to 5.9% of GDP $ 17.43 to $ 28.51 bn. for 2000-01. • UNCTAD India (2007): US $ 81.1 bn.for 2005-
06, 13.9% of GDP.• Recent estimate: $ 142 bn. 12% of GDP• Above threshold procurement would be
significantly lower
Assessment of the size of the Indian Public Procurement
A very basic estimate of the Government Procurement in India shows:
Central Government Rs. 2,51,501 crore USD 44.91 billion
State Government Rs 1,34,280 crore USD 23.98 billion
All Government Rs. 3,85,781 crore USD 68.89 billion
Central PSUs Rs. 2,68,100 crore USD 47.88 billion
State PSUs Rs. 1,46,374 crore USD 26.14 billion
All PSUs Rs. 4,14,474 crore USD 74.01 billion
All Government and Public Sector Rs. 8,00,255 crore USD 142.90 billion
GP: Regulatory regime• No law on GP, either at the Centre or in most States• The Central and State Governments lay down the
public procurement policies in their respective General Financial Rules, issued by the Central Finance Ministry, and the State Finance Departments.
• GFR 1963 provided the set of procurement rules • Revised in 2005• The Central Public Sector undertakings generally
follow the policy of the Central Government
GFR 2005 and GFR 1963: A comparisonGFR 2005 GFR 1963
Preference Indian and imported goods to be generally treated at par
Indian goods have preference over imported goods
Delegation The concept of three quotations for purchases up to Rs. 15,000/- removed.
Concept for three quotations for all purchases
Bidding Guidelines
Bidding guidelines in line with international practices
Archaic bidding system; no clear guidelines
Consultants Separate rules for Goods and Consultant Services
No separate rule for services
Types of procurement
• Advertised Tender
• Limited Tender
• Single Tender
Above Rs 25 lakh~ $50,000
Ad in ITJ, websiteTender document on
website
Generally < Rs 25 lakhTender docs sent to Registered Suppliers
Knowledge that only 1 firm
manufactures
International tenders
• Usually, international tenders are floated in cases where there is lack of competitive suppliers from India, or where the manufactured quantities in India are insufficient.
Selection criteria
• Selection criterion to be explicitly written in the tender documents itself
• There should not be any positive or negative deviation.
• Decision should not be arbitrary, and should pass the test of equality of opportunity.
• There should be no major relaxation in specifications and tender conditions after tender opening or after placement of contract.
Basis of selection
• The ultimate aim for evaluation of tenders is locating the lowest evaluated responsive tender for placement of contract.
• Before placing the contract on the lowest evaluated responsive tender, the purchase organization is to ensure that the price to be paid is reasonable.
Supplier registration
• Generally for 1-3 years• New suppliers may be considered at any time• Criteria for registrationCredentialsManufacturing capabilityQuality control systemsPast performanceAfter-sales serviceFinancial background
CVC initiatives on transparency
• Details of procurement to be uploaded on website of each procuring entity at the level of Central Government and Central PSUs.
• Guidelines on scrutiny of high value procurement
Existing procurement practices in India: Gaps
• Central Govt. procurement system generally conforms to norms of transparency. But deviations exist-
• Against the minimum period of 40 days between date of tender and receipt of responses, usually 3-4 weeks provided.
• Discretion whether to offer domestic or global tender• Contract award notices not published- but situation now
changing due to CVC guidelines.• Reasons rarely provided to unsuccessful bidders.• Challenge procedures for pre-award stage generally
lacking.
State level procurement: Gaps• Considerable divergence in state practices from
GPA obligations• In Uttar Pradesh, the World Bank’s Country
Procurement Assessment Report has highlighted the following shortcomings
Time for bid submission unrealistic Qualifications for eligible bidders rarely stated When qualifications specified, they are often
inappropriate for the works and are discriminatory Technical specifications are skewed Criteria and methodology for evaluation and
comparison rarely disclosed
Public Procurement Bill 2012• Proposed legislation on public procurement
introduced in Parliament in May 2012• Awaiting approval of Parliament• Goes beyond the GFR and broadens its
coverage • Concern for prevent corruption is very
pronounced• Detailed grievance redresal mechanism
Public Procurement Bill: Objectives
• To regulate public procurement with the objectives of:
ensuring transparency, accountability and probity in the procurement process,
fair and equitable treatment of bidders,promoting competition, enhancing efficiency
and economy, maintaining integrity and public confidence
PPB: Applicability
• Goes much beyond Govt. ministries and departments. PSUs are included.
• Procurement for externally financed projects are excluded
• Not applicable for-procurement below Rs. 50 lakh (~$100,000) or as
notifiedemergent procurementprocurements concerning national security or
strategic considerations
PPB: Transparency Requirements•Maintaining Central Public Procurement Portal accessible to the public for posting matters relating to public procurement.Pre -qualification document, bidder registration document, bidding documentList of biddersDetails of successful bids, their prices and biddersDecisions taken during the process of grievance redressal
PPB: Non-discriminatory requirements
• PE shall generally not discriminate against or amongst bidders, but …..
• In limited circumstances Central Government may provide for purchase preference
PPB: Grievance Redressal
• Two-stage Grievance Redressal MechanismBy the procuring entity (PE)By an independent procurement redressal
committee (PRC)• A bidder or prospective bidder, aggrieved by
any decision, action or omission of procuring entity has recourse to GRM
• Potentially, redressal mechanism available even for decisions/action at pre-award stage
PPB: Grievance Redressal time-frame
Application for review by PE within 10 days
Disposal by PE 30 days
Applicant not satisfied, goes to PRC 15 days
PRC makes recommendations to PE 30 (+15) days
PE conveys final decision 15(+15) days
PPB: Integrity Pact
• Introduces integrity PactDirectives on what conducts are not acceptablePenalty for unethical acts• The pact shall lead to better understanding between purchaser and bidder.
India’s GP commitments at WTO and in FTAs
• India is not a party to WTO GPA, but an Observer• Not taken market access commitments on GP in its
FTAs• Meager opportunities for foreign exporters in
significant GP markets• CostsLoss of policy spaceCost of changing procurement systemsBid challenge procedureReporting mechanism
Overall Conclusions
• Improvements have taken place in public procurement in India, considerable increase in transparency
• If PPB is passed by Parliament, it would mark a significant step in ensuring transparency, accountability and probity in the procurement process
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