Government Procurement Systems in India: Moving towards increased transparency

1. Government Procurement Systems in India: Moving towards increased transparency Abhijit Das, Head, Centre for WTO Studies IIFT, New Delhi

2. 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.

3. Scope of procurement • Purchase by government departments and agencies of: • Supplies/ goods (commodities, manufactured items) • Services • Construction and public works • May also include: • Purchases by state-controlled corporations

4. 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

5. 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.

6. …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

7. 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

8. Assessment of the size of the Indian Public Procurement A very basic estimate of the Government Procurement in India shows:

9. 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

10. GFR 2005 and GFR 1963: A comparison

11. Types of procurement Above Rs 25 lakh~ $50,000 Ad in ITJ, website Tender document on website • Advertised Tender • Limited Tender • Single Tender Generally < Rs 25 lakh Tender docs sent to Registered Suppliers Knowledge that only 1 firm manufactures

12. 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.

13. 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.

14. Basis of selection • The ultimate aim for evaluation of tenders is locating the lowestevaluatedresponsive 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.

15. Supplier registration • Generally for 1-3 years • New suppliers may be considered at any time • Criteria for registration • Credentials • Manufacturing capability • Quality control systems • Past performance • After-sales service • Financial background

16. 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

17. 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.

18. 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

19. 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

20. 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

21. 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 notified • emergent procurement • procurements concerning national security or strategic considerations

22. 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 document • List of bidders • Details of successful bids, their prices and bidders • Decisions taken during the process of grievance redressal

23. PPB: Non-discriminatory requirements • PE shall generally not discriminate against or amongst bidders, but ….. • In limited circumstances Central Government may provide for purchase preference

24. PPB: Grievance Redressal • Two-stage Grievance Redressal Mechanism • By 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

25. PPB: Grievance Redressal time-frame

26. PPB: Integrity Pact • Introduces integrity Pact • Directives on what conducts are not acceptable • Penalty for unethical acts • The pact shall lead to better understanding between purchaser and bidder.

27. 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 • Costs • Loss of policy space • Cost of changing procurement systems • Bid challenge procedure • Reporting mechanism

28. 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

29. THANK YOU