Needed: A new law for public procurement

Deccan Herald, January 15, 2021

By George Cheriyan & Madhu Sudan Sharma

Public procurement is purchase by governments and State-owned enterprises of goods, services and works. In recent years, and especially during the pandemic, the issues related to public procurement have received increased attention from the media, academia and watchdog organisations due to its increased importance in Public Financial Management (PFM) systems.

As estimated by the Competition Commission of India (CCI), annual public sector procurement is of the order of Rs 8 lakh crore, while direct government procurement is about Rs 3 lakh crore, amounting to about Rs 11 lakh crore in all.

A well-functioning and efficient public procurement system helps promote efficiency, efficacy, probity, and avoid mismanagement and waste of public funds. It also helps in ensuring vigorous competition among suppliers, responsibility, accountability and procuring materials/services of specified quality at the most competitive prices in a transparent and non-arbitrary manner. Thus, it helps the development process by improving public administration.

Unlike in many other countries, India does not have comprehensive procurement legislation at the national level, and the procurement regime is fragmented and inconsistent. Public procurement is governed by a myriad of legal, constitutional and legislative provisions, such as the Contract Act 1872, Sale of Goods Act 1930, Prevention of Corruption Act 1988, Arbitration and Conciliation Act 1996, etc.

There are some comprehensive administrative rules and directives on financial management and procedures for government procurement in the General Financial Rules (GFR) initially implemented in 1947 and last modified in 2017. In addition, the Manual for Procurement of Goods, 2017 (MPG) contains guidelines for purchase of goods, and the Delegation of Financial Powers Rules, 1978 (DFPR) delegates the government’s financial powers to various ministries and subordinate authorities.

Some individual ministries/departments such as defence and railways are supplemented by manuals and policies governing procurement, guidelines issued by the Directorate General of Supplies and Disposals (DGS&D), the central purchase organisation, Public Procurement (Preference to Make in India) Order 2017, and CVC, CCI and CBI, and Supreme Court guidelines.

Studies increasingly show that some Indian states are able to achieve better public policy outcomes by bringing in innovative laws and policies ahead of the central government. There are a few examples, such as the Tamil Nadu Transparency in Tenders Act, 1998, Karnataka Transparency in Public Procurement Act, 1999, the Rajasthan Transparency in Public Procurement Act, 2012, etc. These provide effective regulatory framework for public procurement and, as per an estimate, so far these states have done procurement of around Rs 30-40 lakh crore under these procurement laws despite the fact that at the Centre, there is still no such overarching law. So, there is an urgent need to learn from the states’ experiences and bring in similar legislation at the central level, too.

Covid-19 has impacted procurement practices in a big way. As the pandemic evolved, medicines and treatment protocols for it constantly changed. All levels of governments had to create new infrastructure or upgrade existing ones to manage the surge in cases in a short period of time.

During the pandemic, thousands of quarantine centres and testing labs were created, some testing labs were upgraded, manufacturing capacity for equipment like surgical gloves and PPE kits were either newly created or increased manifold, new trained professionals and existing human resources were deployed on Covid-19 duty or care, public places and offices were equipped to combat the virus spread.
In doing all this, regular procurement norms were relaxed and purchases were done under emergency procurement norms. It’s a fact that these emergency norms were at times flouted, which cost the state and central exchequer a lot.

Public procurement is a high-risk area. Since it is the meeting point between the public authorities and businesses/private players, the chances of corruption are high. A strong, transparent and accountable national law for public procurement, which is prudent and efficient, can change the state of public finance management and public expenditure outcomes. A good procurement law can turn into a tool for socio-economic development and poverty eradication as well.

In a situation in which India does not have a national law and public procurement is dealt with by a range of laws, regulations and guidelines, public sector purchases are vague, muddled and inefficient.

Now, it’s up to the Government of India to reimagine public procurement and develop a new model legislative framework for it so that our limited public resources can be used optimally and the nation can achieve its developmental goals in the years to come.

(The writers are with CUTS International, a global public policy research and consumer advocacy group, headquartered in Jaipur)

This article can also be viewed at: