Procurement systems in India and changes over the past few

Government Procurement Systems
in India: Moving towards increased
Abhijit Das, Head, Centre for WTO Studies
IIFT, New Delhi
Structure of presentation
• Economic gains from a transparent and open
procurement regime
• Concerns for preserving policy space in government
• Estimates of the size of government procurement in
• 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
Construction and public works
• May also include:
Purchases by state-controlled corporations
Why is there interest in procurement regimes
• Public
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
effectiveness of government
Benefits of a transparent procurement
• 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
• 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 200506, 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
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
• 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 comparison
GFR 2005
GFR 1963
Indian and imported goods to be
generally treated at par
Indian goods have preference
over imported goods
The concept of three quotations for Concept for three quotations
purchases up to Rs. 15,000/for all purchases
Bidding guidelines in line with
international practices
Consultants Separate rules for Goods and
Consultant Services
Archaic bidding system; no
clear guidelines
No separate rule for services
Types of procurement
• Advertised Tender
• Limited Tender
• Single Tender
Above Rs 25 lakh~
Ad in ITJ, website
Tender document on
Generally < Rs 25 lakh
Tender docs sent to
Registered Suppliers
Knowledge that
only 1 firm
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
Selection criteria
• Selection criterion to be explicitly written in
the tender documents itself
• There should not be any positive or negative
• 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
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 registration
 Credentials
 Manufacturing capability
 Quality control systems
 Past performance
 After-sales service
 Financial 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
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
• 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
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
• Concern for prevent corruption is very
• 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
• Not applicable forprocurement below Rs. 50 lakh (~$100,000)
or as notified
emergent procurement
procurements 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 document
List of bidders
Details of successful bids, their prices and
Decisions taken during the process of grievance
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 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
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 Pact
Directives on what conducts are not acceptable
Penalty for unethical acts
• The pact shall lead to better understanding
between purchaser and bidder.
India’s GP commitments at WTO and in
• 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
Overall Conclusions
• Improvements have taken place in public
procurement in India, considerable increase in
• If PPB is passed by Parliament, it would mark a
significant step in ensuring transparency,
accountability and probity in the procurement