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

THANK YOU