Internationalisation of
government procurement
regulation: The case of India
Anirudh Shingal
World Trade Institute, University of Bern
Conference on the ‘Internationalisation of
Government Procurement Regulation’
European University Institute, Florence
15-16 December 2014
Introduction
• Procurement in India at various levels of govt.: central, state, three
tiers of local govt. (village, intermediate, districts) plus centrally- and
state-owned enterprises
• However, no single uniform law governing procurement by all these
entities
• Govt. of India involved in the process of a new legislation Public
Procurement Bill, 2012 covering central govt. purchases
• Bill passed by the Lower House of the Indian Parliament
• General principles governing central govt. procurement laid down in
the General Financial Rules of the Ministry of Finance (GFR, 2005)
• Procedures followed by state govts. based on states' financial rules
• Rajasthan, Tamil Nadu and Karnataka wthe first states to enact their
own public procurement laws
• The state government of Jharkhand also has a draft procurement
policy, the Jharkhand Procurement Policy 2013
How big is the market?
• No systematic documented evidence of foreign involvement in
govt. procurement in India or even of the size of procurement
markets
• But several estimates of the value of govt. procurement:
– Srivastava (2003): Total value of contestable procurement between 3.4
and 5.7% of GDP (early 2000s)
– Khurana (2001): Govt. procurement 3.85% of GDP (2002-2003)
– India’s Trade Policy Review (2002): Value of purchases by the
Directorate General of Supplies and Disposals (DGS&D) Rs. 32.8 billion
($ 0.8 billion); additional procurement by central and state govt.
ministries + public sector enterprises Rs. 23.1 billion ($ 0.6 billion) in
2000/01 (combined 0.3% of GDP)
– World Bank, Country Procurement Assessment Report (2010): Value of
public procurement 13% of the national budget
– Shingal (2012): Value of contestable general govt. procurement
0.7-2.1% of GDP in 2007
Proc. policy: Legal framework
• Central govt.: Public Procurement Bill 2012; General Financial Rules
2005; Delegation of Financial Powers Rules 1978; Central Vigilance
Commission (CVC) guidelines
• Sector specific guidelines and regulations:
– Defence procurement under Manual on the Defence Procurement Procedure
– Procurement of stores for central govt. under Manual of the Directorate General
of Supplies & Disposals
• State govt.: separate financial rules and procedures
• Two notable aspects of Rajasthan Public Procurement Rules, 2013:
– Institutionalization in undertaking analysis of proc. Related info
– Use of a Code of Integrity to reduce corruption
• Karnataka and Tamil Nadu proc. legislations not as comprehensive
as the Bill but these states first to implement e-proc. procedures
• Draft Jharkhand Procurement Policy 2013 first state proc. policy to
accord preferential treatment to “local” MSEs over enterprises
located outside the state
Proc. policy: Foreign bidders
• No restrictions on foreign participation unless otherwise specified in
a particular tender or FDI/ private participation prohibited/restricted
• Foreign companies not required to set up branches, subsidiaries,
JVs and other commercial arrangements to be eligible for
participation in the bidding processes
• But terms of certain bids may require that the successful bidder
incorporate SPV in India to discharge contractual obligations
• Apart from bilateral agreements and restrictions on commercial
transactions with certain countries, no general reciprocity
requirements
Proc. policy: Bidding process
• Procedures
– E-proc.: Central govt. and CPSE tenders in value exceeding Rs. 1 mn required to
be undertaken through e-proc. (tender limit for mandatory e-proc. brought down
to Rs. 500,000 effective 1 April 2015 and further to Rs. 200,000 effective 1 April
2016)
– Open tender/Global tender
– Selective tender
• Selection of winning supplier
–
–
–
–
–
Selection of lowest bidder (L1 method)
Selection of highest bidder (H1 method)
Selection of bidder requiring lowest govt. grant or lowest subsidy
Selection of bidder requiring shortest concession period
Selection of bidder offering highest extent of capacity creation, investment or
quantum of work
• Criteria for evaluation
– Satisfaction of technical qualification requirements (e.g. past experience of
bidder, availability of qualified personnel)
– Satisfaction of financial qualification requirements (e.g. net worth and solvency of
bidder, financial capacity to undertake proposed assignment)
Proc. policy: Review process
• Bidding processes of all public entities subject to limited judicial
review in exercise of writ jurisdictions of High Courts and the
Supreme Court of India
• Courts intervene only on grounds of violation of constitutional or
statutory provisions, or on account of lack of probity, fairness and
transparency, or reasonableness, or presence of arbitrariness
• Judicial review mechanism also applicable to contractual
arrangements executed in implementing proc. bid or in event of noncompliance with terms of contractual arrangements
• Indian law does not provide for a domestic bid challenge procedure
• Public Procurement Bill 2012 has provisions to set up a
Procurement Redressal Committee
Proc. policy: Preferences
• Central govt. ministries/departments and CPSEs shall procure 20%
of their total goods and services from MSEs over a three-year period
effective 1 April 2012 (minimum 20% requirement mandatory
effective 1 April 2015)
• 358 items reserved for exclusive proc. from MSEs and 21 items for
exclusive manufacturing in the micro and small sectors
• Price preferences of up to 15% to MSEs over quotations provided by
large-scale industries
• Sectoral preferential polices:
– Central govt. reserves all items of hand-spun and hand-woven textiles (“khadi”
goods) for exclusive purchase from KVIC
– National Electronics Policy 2012 has made it mandatory for all govt.
organizations to give preference to domestically manufactured laptops and tablet
PCs
– Central govt. required to exclusively purchase certain medicines manufactured
by pharma CPSEs and their subsidiaries
International norms
• In general, procedural framework in place is similar to that of World
Bank-ADB guidelines and the UNICTRAL Model Law
• Frameworks of rules, procedures, codes, manuals and documents
designed to address key basic guiding principles of public proc:
transparency, economy, efficiency, effectiveness, fairness and
competition amongst prospective suppliers
• However, no independent dispute redressal system, though Public
Procurement Bill 2012 has provisions to set up a Procurement
Redressal Committee
• Draft Rules for Public Private Partnerships 2011 and Public
Procurement Bill 2012 are complaint with Article 9 of the UNCAC
• Public Procurement Bill 2012 addresses both competition and
probity issues within the same legal instrument, making it a unique
piece of legislation
• Some of the Bill’s provisions take standards of transparency to a
higher level than international norms (e.g. empowering govt. to
make e-proc. mandatory; providing for setting up of central e-proc.
portal)
Transparency etc.
• Data on public expenditure generally available in documents of
various central and state govt. ministries and departments
• But no single compiling or reporting agency for data on public
procurement
• Evidence on contestability of India’s proc. markets is at best
anecdotal
• Public Procurement Bill 2012 seeks to regulate award of central
govt. contracts above Rs. 5 million to ensure “transparency,
accountability and probity” in public purchases
• Bill provides for a central e-proc. portal for posting and exhibiting
matters relating to public proc. and empowers central govt. to
declare adoption of e-proc. as compulsory for any stage of proc.
• It also requires proc. entities to maintain a record of proc.
proceedings
Transparency etc. (2)
• Public proc. observatories being established by premier
management institutions across India with World Bank support
• Already set up at Indian Institute of Management (IIM) Lucknow,
Uttar Pradesh; IIM Raipur, Chhattisgarh; and Assam Institute of
Management (AIM), Guwahati, Assam
• Observatories have the following objectives:
– Collection and analysis of proc. (including contract implementation) related data
in the states
– Monitoring and documenting proc. policies and rules in the state and if possible,
the actual contract implementation
– Share best practices (from other states in India and abroad) in proc. cycle
management with state governments through workshops and seminars
• Seminars and workshops already conducted by observatories in
Uttar Pradesh and Assam on proc. processes targeting govt. staff,
media and the general public
Existing research
• Sinha (1994): Public proc. practices in the Indian electrical
equipment industry failed to incentivize innovation
• Srivastava (2003): Description of proc. policies + general effects
• Gasiorek et.al (2007): Analysis of India’s proc. policies in the context
of the potential EU-India trade agreement
• UNODC (undated): Report assessing the compliance of Indian
legislation with UNCAC
• ADB (2011): Assessment of India’s e-proc. system
• CUTS International (2012): Analyses of proc. issues in three major
sectors (health, IT and railways)
• Sandeep Verma’s work: Extensive; assessing the country’s central
and state-level proc. policies (and their different attributes)
Existing research (2)
• Lewis-Faupel et.al (2014): Empirical assessment of e-proc.
practices between 2000-09 for a central govt. funded rural
road construction programme implemented by state road
departments
• Findings suggest that this e-proc.:
• increased the probability that the winning bidder came from outside
the region where the contract was tendered
• did not lower prices paid by the govt.
• was found to lead to quality improvements
• facilitated the participation of higher quality contractors
Assessment of DSM
• Existing complaint procedures require proof of criminal behaviour on
part of govt. officials in the award of public contracts
• Pursue remedies by complaining to govt. departments themselves
(not entirely impartial and independent) or bring in litigation before
the courts (protracted litigation, high costs)
• Additionally, lack of procedural clarity and finality in decisions on
complaints (can be made simultaneously to various administrative
levels within the procuring entity or to a designated Chief Vigilance
Officer, the concerned administrative department or directly to the
Ministry of Finance, in addition to other political executives such as
the concerned minster)
• Both in theory and in practice, each one of these offices can start
independent assessments and reach widely differing conclusions
• External oversight bodies suffer from similar jurisdictional overlaps
and apparent lack of finality
Assessment of DSM (2)
• CVC recommended adoption and implementation of “Integrity Pact”
since 2007, covering all major purchases of PSUs
• IPs, introduced by Transparency Int’l in the 90s, are a “voluntary”
pact between public buyer and seller to eliminate corrupt practices
• A critical analysis of the suitability of IPs as a DSM in the Indian
context is provided in Verma (2010)
• The Public Procurement Bill 2012 also has provisions to set up an
independent Procurement Redressal Committee
– However, the grievance redressal mechanism in the Bill is weak
– For instance, the powers of the mechanism are restricted to making
recommendations to the proc. entity and fall short of ensuring fair play
– The proc. entity may reject these recommendations, providing reasons for nonacceptance
Assessment of e-procurement
• Initiative to operationalize e-proc. Mission Mode Project
(MMP) under the National e-Governance Program (NeGP) in
2007 under the aegis of the Ministry of Commerce, GoI
• Functional scope of e-proc. similar to definitions provided in
Multilateral Development Banks e-proc. guidelines
• However, not all functional aspects of govt. proc. handled
electronically in existing e-proc. implementations
• Even matured e-proc. implementations (e.g. in Andhra
Pradesh, Karnataka, Indian Railways) lack a fully integrated
end-to-end e-proc. system implemented and fully operational
Assessment of e-proc. (2)
• However, ADB (2011) notes the following key benefits:
– Rise in the average number of bidders per tender
– 15% fall in the tender premium
– Decline in cycle time taken to evaluate tenders
• But Verma (2006):
– Raises concerns about likely adverse effects of purely e-systems on competition
in public proc. given relatively higher cost and skewed regional distribution of ICT
access in India
– Technical limitations to long-term storage of Public Key Infrastructure (PKI)
encrypted e-records could lead to problems if proc. decisions are contested in a
court of law
– Large number of websites with little integration, poor organisation of info,
infrequent updating, absence of accurate and up-to-date info and largely
unprotected sites where digital authentications of downloads is not possible, add
to time and costs
Wrapping up
• Present
– India does not have a national public procurement policy
– Implementing different rules and procedures falls short of providing transparency,
accountability, efficiency and professionalism
– GoI in the process of enacting federal-level legislation which addresses several
of these concerns + provides for compliance with international best practices
– India has ‘Observer status’ on the GPA; proc. covered in India-Japan CEPA;
important subject in EU-India BTIA negotiations
• Future
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–
–
–
Prompt enactment of Public Procurement Bill 2012 required
Need for states to develop similar legislation
Need to solve e-proc. implementation challenges
Multiple e-proc. systems could be made inter-operable to develop a ‘national’ eproc. system by maintaining national repository of tenders, national database of
registered suppliers and national database on suppliers’ performance
Thank you!
Anirudh Shingal
anirudh.shingal@wti.org
www.wti.org
www.nccr-trade.org