The Tender Trap

Business World, November 12, 2014
The first and foremost need is reintroduction of the Public Procurement Bill, with the basic features of the 2012 version intact

In January this year, the UPA government at the Centre scrapped a decision to purchase 12 luxury helicopters from AgustaWestland, an Anglo-Italian company. The action was seen as a desperate attempt on the part of the government to wriggle out of the corruption charges it was facing at the time. The company had allegedly bribed some key decision makers to clinch the Rs 3,726-crore deal.

This was not the first time that the country’s defence-related procurement was seen mired in a bribery scandal. The infamous Bofors gun deal was all about allegations of kickbacks being paid into the overseas bank accounts of some high-profile beneficiaries.

India’s public procurement system, a significant share of which is defence purchases, has always been a breeding ground for unaccounted money. Even as Prime Minister Narendra Modi assures the nation of bringing back every penny of unaccounted money parked outside the country for the benefit of India’s poor, the fact remains that the public procurement system is far from perfect.

The government’s procurement market is estimated at more than $300 billion, or between 25 and 30 per cent of its gross domestic product (GDP). For the same reason, the finance ministry’s white paper considers public procurement to be one of the major grey areas when it comes to generation of ‘black’ money.

“Lack of an overarching law governing public procurement in India has led a morass of rules set by different authorities, having no force of law. Such an opaque public procurement system provides fertile ground for not only generating black money but also leads to further diversion of funds,” says Archana Jatkar, coordinator and deputy head of think-tank CUTS Centre for International Trade, Economics & Environment.

The system is vitiated by the absence of standard contracts and tender documents, lack of publicity of tender inquiries, restrictive pre-qualifying criteria, delays in procurement decisions, weak oversight, insufficient regulations to check conflict of interest and the lack of an independent grievance redressal mechanism, says Jatkar. All of this has a bearing on the generation of black money.

Incidentally, the Public Procurement Bill 2012 — introduced by the UPA government — was an attempt to address some of these challenges in the public procurement system. It, however, lapsed in spite of the last-minute attempts by the previous government to enact it in January 2014. The Bill was also an attempt by India to fulfil its commitments as a signatory to the UN Convention Against Corruption since 2011.

Jatkar says the thrust given by the new government to ‘ease of doing business’ in its initial policy announcements may result in an early revival of the Bill. “It is likely that the new government will give adequate priority to the public procurement policy, not only for improving transparency and probity in government processes, but also for improving India’s competitiveness in industry, as it could be a powerful tool to stimulate the economy,” she adds.

To be fair to the administration, it has already initiated some measures to bring in transparency and accountability in public procurement. For instance, on 9 January 2014, the ministry of finance notified its decision to implement a comprehensive end-to-end e-procurement system across all ministries and departments of the central government for all tenders above Rs 5 lakh. It’s just that the implementation date has been fixed as 1 April 2015. A year later, that is, on 1 April 2016, the limit will be lowered to Rs 2 lakh to bring in more tenders into e-procurement route.

The Solution

The first and foremost need is reintroduction of the Public Procurement Bill, with the basic features of the 2012 version intact. The weaknesses should be addressed through stakeholder consultations.

In fact, the need for probity in public procurement was the theme of a national consultation jointly carried out by the United Nations Office on Drugs and Crime and the Global Compact Network in Delhi two years ago. The outcome of the meeting, which saw the participation of apex anti-corruption watchdogs such as the Central Vigilance Commission, the office of the Comptroller and Auditor General, and stakeholders — public sector units, private industry, trade associations, among others — was very clear: The urgent need to implement the existing guidelines in letter and spirit.

Going ahead, India will not have an option though. “India has ratified the UN Convention on Corruption, the elements of which are in the process of being inculcated not only in the realm of public procurement but also in other complementary policies as compliance towards the convention. As a country, we will have to honour the commitment,” says Jatkar. To begin with, “generate awareness, and sensitise stakeholders”, she adds.

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