On Reforming India’s Government Procurement System

Source: This post on Reforming India’s Government Procurement System has been created based on the article “Unleashing govt’s procurement power” published in “Business Standard” on 22^nd February 2024.

UPSC Syllabus Topic: GS Paper 3 Indian Economy – Issues relating to growth.

News: The article discusses the issues with government procurement process in India and suggests reforms to tackle them.

The government and its agencies are large buyers of a wide range of goods and services. Public sector undertakings procure inputs for their production processes and are required to comply with a procurement system. On Reforming India’s Government Procurement System

What are the issues with government procurement process in India?

The procurement system in India has become increasingly rigid. For instance:

1. Supply bids must be invited with precise specifications.
2. Prequalification criteria for bidders are prescribed.
3. The lowest bidder, or L1, must be awarded the contract.
4. Retendering takes place if only one bid is received.
5. Negotiations in procurement are not allowed.
6. It is subject to strict process oversight, including auditing and vigilance.

What are the implications of this on innovation and startups?

The government cannot purchase new innovative technologies and products from a single monopoly supplier (since retendering takes place if only one bid is received). The consequence is that nothing is bought in the field of innovative frontier technologies (since innovative technologies usually have a monopoly in the initial few years).

This harms innovation as Indian companies and startups may be having the potential for innovation, but they do not have any market openings.

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What should be done?

1. Opportunity for Innovators: There should be an open window for receiving offers from those who have developed a new product or process.
2. Forming an Empowered Committee: This may include experts from outside the organization, which examines all such offers. In case the benefits are significantly higher than the cost, the Committee may then take up the offer, satisfy itself about the claims being made, negotiate to settle the price, and place a trial order.
3. Relaxing the Oversight Mechanism: Investigative agencies should not investigate the empowered Committee’s bona fide decisions. Failure as well as time and cost overruns are natural in such an initiative and must be accepted to avoid subsequent audit investigations.
4. Assigning Responsibility: A firm, consortia, technical institution, individuals or any combination of these could be given the task of finding a solution to a problem based on the real need of the government agency.
5. Funding: The effort to be undertaken in a project mode would need to be fully funded by the sponsoring agency.
6. Negotiated Procurement: After success, the price at which the product would be purchased would have to be settled through negotiations. There is no alternative to accepting procurement at a negotiated price and trusting the negotiators.
7. Expanding to all Government Agencies: Successful work has been done along these lines by the departments of atomic energy, space and DRDO. It should be extended to cover all public procurement.

After this process results in initial success, other players would start to identify a gap, innovate, come up with a solution, and get orders from the government and its agencies. Innovation would then start taking place in the economy.

Question for practice:

What are the issues with government procurement process in India? What steps should be taken to tackle these issues?