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Internationalisation of government procurement regulation: The case of India Anirudh Shingal World Trade Institute, University of Bern Conference on the.

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Presentation on theme: "Internationalisation of government procurement regulation: The case of India Anirudh Shingal World Trade Institute, University of Bern Conference on the."— Presentation transcript:

1 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 December 2014 The National Centres of Competence in Research (CCR) are a research instrument of the Swiss National Science Foundation (SNSF)

2 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

3 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 ( ) –India’s Trade Policy Review (2002): Value of purchases by the Directorate General of Supplies and Disposals (DGS&D) Rs billion ($ 0.8 billion); additional procurement by central and state govt. ministries + public sector enterprises Rs 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 % of GDP in 2007

4 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

5 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

6 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)

7 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 non- compliance 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

8 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

9 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)

10 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

11 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

12 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)

13 Existing research (2) Lewis-Faupel et.al (2014): Empirical assessment of e-proc. practices between 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

14 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

15 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 non- acceptance

16 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

17 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

18 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 –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’ e- proc. system by maintaining national repository of tenders, national database of registered suppliers and national database on suppliers’ performance

19 Thank you! Thank you! Anirudh Shingal


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