Public Procurement Bill needs stakeholders’ support: CUTS

March 07, 2012, Jaipur
“Public Procurement Bill of the Government of India is a positive step in reforming the country’s procurement regime to a more open and transparent system. Stakeholders such as government officials, suppliers of goods and services and consumers should support this Bill as it will be one of the biggest reform measures which will help the growth and development of our economy,” said Bipul Chatterjee, Deputy Executive Director, CUTS International.

Public procurement is one of the least researched and least debated subjects in India. Yesterday, he was speaking at a meeting on public procurement in India, which was organised in New Delhi. The meeting was held as part of a project on government procurement in India, supported by the British High Commission under its Prosperity Fund.

Andrew Jackson, Counsellor, Knowledge Economy of the British High Commission said that the motivation behind supporting this project is to create a space for debates on this important subject of the Indian economy.

Chatterjee expressed his surprise that though public procurement accounts for 15 to 20 per cent of our national economy, there is no central law governing this sector. “Multiplicity of laws and regulations implemented by multiple agencies has created a regime where rent-seeking behaviour on the part of stakeholders has almost become a norm,” he added.

The present system results in procedural delays, lack of uniformity and standardisation in procurement specifications, etc. There is no effective grievance redressal system, which is a pre-requisite for any investment. There are anti-competitive practices such as bid rigging, predatory pricing, and also entry barriers in respect to vendor registration and approval.

CUTS study on government procurement in India has estimated that the size of this market at the central government level is about 300 billion US dollars and it is expected to grow by more than 10 per cent annually in the coming years. As part of its study, CUTS has looked at procurement policies, practices and functioning of institutions in three sectors, viz. health including pharmaceuticals, railways, and information technology and IT-enabled services.

These sectors represent a large volume of the Indian public procurement market and are expected to grow significantly. For instance, by 2020 it is estimated that Indian railways will need additional investment of Rs. 20,000 Crore for modernisation and capacity expansion. At present, Indian IT companies are accessing just two per cent of the foreign public procurement market and efforts should be made to increase this share.

An important issue is whether this proposed law will also act as a model for state governments to follow. At present, only two states, Karnataka and Tamil Nadu, have a law governing public procurement. However, given the current political economy in India, particularly on centre-state relations on federalism, many stakeholders have expressed their concern on this point and said that the challenge before this project is to develop a broad-based political consensus at national and sub-national level.

CUTS supported the decision of the Group of Ministers on Corruption to clear the present draft of the Public Procurement Bill, 2012. The Bill is expected to be cleared by the Prime Minister’s Office and the Union Cabinet soon. It is expected that the Bill will be tabled during the forthcoming budget session of the Parliament and it will be referred to the Parliamentary Standing Committee on Finance. CUTS has commented on this Bill and will continue its effort to make it more effective.

On the question of market access in public procurement, many stakeholders argued that India is not in a position to further open its market. More important issue is ensuring better transparency in the Indian system of public procurement and addressing anti-competitive practices through domestic policy reforms.

In 2011, India has become an observer to the WTO Plurilateral Agreement on Government Procurement. An important question is whether India will negotiate at the WTO in order to become a full member of this agreement. Many stakeholders argued that a decision on whether India negotiates or not should be made after doing a comprehensive cost-benefit analysis including taking into account stakeholders’ views and concerns. Some of them drew parallel to the process and content of India’s position on negotiations on sectorals in non-agricultural market access (industrial goods) at the WTO.

Given the current and expected size of the Indian government procurement market, there is a huge interest among some countries to get better access to the Indian market. This subject was covered in the India-Japan free trade agreement and being negotiated as part of the EU-India free trade agreement.

Some stakeholders suggested that linkages between public procurement and foreign direct investment in India should be judged in respect to technology transfer and investment in research and development. At present, many foreign pharmaceutical companies are accessing the Indian procurement market for drugs and pharmaceuticals through mergers and acquisitions of Indian companies without any or little new investment.

In future, CUTS will do sectoral stakeholder consultations at national as well as sub-national level and will conduct a comprehensive cost-benefit analysis on India’s possible accession to the WTO Agreement on Government Procurement. It will include benefits that may accrue to Indian firms in accessing foreign procurement markets and costs in terms of amending laws and regulations and technical assistance and capacity building for Indian officials for their effective implementation.

At present, there are very limited market access opportunities in foreign public procurement markets and this is true even for those WTO members who are part of its government procurement agreement. In December 2011, the members of the WTO Agreement on Government Procurement adopted a revised version of this agreement. CUTS will compare the provisions of this revised WTO Agreement on Government Procurement with those in the Indian Public Procurement Bill to understand gaps and what would the costs and benefits if they are bridged.

For more information, please contact
Bipul Chatterjee, +91(0)9829285921,
Archana Jatkar, +91(0)9928207628,