India forced to open up its Public Procurement

Context

• Pressure is mounting on India to open up its more than $300 billion-worth public procurement market under the proposed mega Free Trade Agreement (FTA) called the Regional Comprehensive Economic Partnership (RCEP).

Opening up of Public Procurement

• Public procurement in India needs to be opened up to ensure greater competition.
• While privatization of public assets has to be done keeping in mind the country’s socio-economic needs and objectives.
• Public procurement in India is estimated to be about 30% of the country’s GDP, with sectors such as defense, railways and telecom having state-owned enterprises accounting for a major portion of it.
• Opening up of public procurement needs to be done in a layer by layer manner even in this transition stage, for greater competition.
• Collusive bidding and cartelization in public procurement are very serious.
• The Competition Commission of India (CCI) plays an important role in preventing them and to ensure that there is fair trade and ultimately the consumer benefit.

Reason of opening up at International level

• India is not a signatory to the Government Procurement Agreement within the WTO framework.
• It not so because India wants to retain its policy space to meet its development needs through public procurement process.
• This was done to push the ‘Make in India’ initiative, ensure greater flow of capital and technology into domestic services and manufacturing, and in turn, boost job creation locally as well as promote small enterprises.
• The Indian government had recently brought out a policy providing preference in government procurement to local goods and services suppliers.

The revamped Public Procurement Bill: Make in India

• The Modi government has dusted off an UPA-era legislation to usher in greater transparency in public procurement and facilitate free-trade talks with countries and prepared a new bill, proposing key changes that will help meet ‘Make in India’ goals.
• One major key provision is that its only applicable to the transactions above Rs 50 lakhs.
• Government procurement accounts for nearly 30% of the GDP.
• So the case for a robust law to curb corruption in public procurement is compelling.
• It will help the government save money, improve its balance sheet and put the economy in a better shape.
• Creating an institutional structure consistent with the UN Commission on International Trade Law model is another motive.
• The government needs to address the larger issue of reform in political funding if it is serious about curbing graft.
• Standing committee would oversee implementation of “Make in India” preference in public procurement, as there will be a transparent mechanism of self- certification and a third party certification to verify local content.
• There would also be an annual review to increase local content requirements in public procurement, which would be subject to local competition and quality.
• The policy seeks to maintain a balance between Make in India and core principles of public procurement.

What is Public Procurement?

• In an ideal world, Public Procurement can be defined as acquisition of goods or services at the best possible cost, in the right quality and quantity, at the right time, in the right place and from the right source, for the ultimate benefit of the people at large.
• Of course, the world we live in is far from ideal and public procurement is also plagued by practical problems.

Importance of Public Procurement

• Public procurement has a significant impact on our everyday lives as it plays a key role in the creation of both social and economic infrastructures like roads, schools, hospitals, provisions for drinking water and sanitation etc.
• Studies have shown that sectors like railways, defense, health, and telecommunication have allocated significant portions of their budgets to public procurement.

Benefits of Public Procurement

• There are many benefits of a well-designed and well-implemented public procurement policy.
• These include fiscal savings from annual procurement expenditure.
• Generating much needed fiscal space; and enhanced flexibility to channel government.
• Expenditure into growth-enhancing areas is of great advantage.
• It could also help in a shift towards rule-based institutional procurement.
• India’s crude estimate of potential savings generated by the revised Bill ranges between 0.6 per cent and 1.2 per cent of GDP, depending on the extent of efficiency achieved.
• The savings would be greater if the States, whose expenditure equals that of the Union government, and all the public enterprises, also initiated similar procurement reforms. This task could be entrusted to NITI Aayog.

The Public Procurement Bill, 2012

• The Bill seeks to regulate and ensure transparency in procurement by the central government and its entities.
• It exempts procurements for disaster management, for security or strategic purposes, and those below Rs 50 lakh.
• The government can also exempt, in public interest, any procurement or procuring entities from any of the provisions of the Bill.
• The government can prescribe a code of integrity for the officials of procuring entities and the bidders.
• The Bill empowers the government and procuring entity to debar a bidder under certain circumstances.
• The Bill mandates publication of all procurement-related information on a Central Public Procurement Portal.
• The Bill sets Open Competitive Bidding as the preferred procurement method; an entity must provide reasons for using any other method. It also specifies the conditions and procedure for the use of other methods.
• The Bill provides for setting up Procurement Redressal Committees. An aggrieved bidder may approach the concerned Committee for redressal.
• The Bill penalizes both the acceptance of a bribe by a public servant as well as the offering of a bribe or undue influencing of the procurement process by the bidder with imprisonment and a fine.

Issues concerning

• The Bill exempts certain procurements from the specified process, besides allowing the government to limit competition in certain cases.
• It is unclear why the government has been given further powers to exempt any procurement or procuring entity from the applicability of the Bill.
• The Bill specifies Open Competitive Bidding as the preferred method of procurement, without defining the term.
• The UN Model Law and an earlier draft procurement Bill describe equivalent terms in detail.
• In cases where procurement from a particular supplier is necessary to ensure standardization or compatibility with existing systems, the Bill does not require certification from a competent technical expert.
• Such a certification is required by existing regulations and model laws.
• In a departure from existing regulations, the Bill does not restrict use of cost-plus contracts, which provide no incentive for efficiency.

How to make it more efficient?

• Formulating a contemporary, scientific and consolidated ‘public procurement policy’ would be the first thing to do.
• The Government will necessarily have to involve experts (not associated with the Government) from related fields to get a broader based view on the issues.
• The government devotes a large share of taxpayers’ money to public procurement and the onus, therefore, is on the Government to make sure it gets good value for money.
• Whatever policy Government frames,
  

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