A government-appointed committee on procurement policy has slammed the purchase practices of the Railways, calling these “inefficient and non-transparent”. But a railway representative, who was also a member of the 10-member inter-ministerial committee headed by former Competition Commission of India chairman Vinod Dhall, put up a dissenting note, terming the charges “factually incorrect”.
The committee was set up by the group of ministers (GoM) on corruption, led by finance minister Pranab Mukherjee, to recommend rules for the Rs 11 lakh crore a year spent by the government on procuring public goods and services. Last month, the panel gave its 180-page report, along with seven dissenting notes, to the GoM.
The charges were based on “value judgement on the procurement system of the Railways. It’s incorrect to state that the procurement practices followed by the Railways may lack in transparency, competition, etc,” the rail ministry said in a dissent note.
Besides the Railways, there are dissenting notes from the Defence and the Directorate General of Supplies & Disposals (DGS&D). Interestingly, a dissenting note from Gajendra Haldea, advisor to Planning Commission deputy chairman Montek Singh Ahluwalia, termed the dissent by government departments “cartelisation against reforms”.
Haldea termed the constitution of the committee itself flawed, arguing that four of the 10 panel members represented the four biggest procuring departments of the government — Railways, Defence, DGS&D and the Central Public Works Department.
The four members supported the cause of one another by endorsing the dissent notes of others, “indeed a novel form of cartelisation against reforms”, he said.
The report criticised the Railways for its vendor approval system, and restricted and opaque bidding process followed for procurement of goods.
The Railways procures goods worth Rs 20,000 crore a year from vendors registered with the Research, Design and Standards Organisation or its nine production units. The report blamed the Railways for restricting the bidding process to only registered vendors.
“Any vendor is free to participate in an open tender, subject to fulfillment of eligibility criteria. The open tendering system for soliciting offers from suppliers is indicative of fair play and equity. Prior registration of potential bidders is not essential for participation and, therefore, question of restricting competition does not arise,” the railway representative said.
The panel also raised concerns over the system of annual purchases made by the Railways, calling it an inefficient and uneconomical vendor development system. Ideally, the buyer should assure a minimum offtake for some years to enable the vendor to recover investment, the committee noted.
The Railways, however, called the “development tenders” restrictive, as these do not encourage more number of suppliers. “Wherever a need is felt for developing more sources, the Railways do float separate developmental tenders for ordering exclusively on new potential bidders,” it said in its dissent note.
The committee also called for discontinuing the national transporter’s practice of single source procurement, based on annual bids that supposedly assures continuous payment of “monopoly rent” to suppliers like US-based Electro Motive Diesel (EMD). The panel gave the example of Diesel Locomotive Works (DLW) at Varanasi. It said DLW continued to import 35 per cent of components despite signing a technology transfer agreement with EMD in 1997. It called DLW a mere assembly plant, and not a production unit, as 90 per cent of its cost of production is spent on outside purchases.
The railway ministry contested these allegations by calling these “selective use of data with an intent to arrive at predetermined conclusions”. If one goes by this premise, all automobile manufacturing units like Tata Motors and Hyundai would be categorised as assembly plant, it argued. “As for monopoly rent, there is no evidence to suggest that price escalation for items with limited vendor base is more as compared to those with broad vendor base,” the Railways argued.
