Ongoing procurement reform in Indian states may hold valuable lessons for developing countries, particular the need to guard themselves against re-appropriation by vested interests operating under politically correct arguments of transparency and anti-corruption. This is especially important, as some of the tabled proposals could permanently decimate developing countries' negotiating strengths in their accession negotiations to WTO's plurilateral Agreement on Government Procurement (GPA), harming their own national interests in the process.
Tamil Nadu and Karnataka were the first in India to enact their public procurement (PP) laws; Himachal Pradesh was the next to publish a draft bill some years later. Interestingly though, their experiences did not fully inform the draft public procurement (PP) law published by the Planning Commission, which merely included a provision providing price preferences to domestic bidders. Nationality of bidders was not listed as a permissible basis of discrimination, making it similar to the UNCITRAL Model Law on Public Procurement requiring foreign bidders to be treated on a par with domestic bidders.
In contrast, the United States prohibits participation of Indian bidders in its PP markets, and in 2011, imposed a discriminatory tax on Indian-origin supplies and services. The European Union (EU) is equally unfair to Indian suppliers, and places a number of de facto barriers discriminating against Indian supplies and services. To make matters worse, it approved last month a regulation with discretionary authority to exclude suppliers from specific countries. Australia, the US, New Zealand and many others grant price preferences to their domestic bidders: the higher the domestic content, the higher generally is the price preference. The Public Procurement Law of the People's Republic of China, by default, requires procurement of domestic goods, works and services, that too from its own entities.
The latter case is particularly enlightening, since GPA member-states are therefore forced to take China's accession proposals seriously. On the other hand, adoption of domestic laws by non-GPA member-states that treat foreign bidders on a par with domestic bidders would obviously make their accession unlikely, since existing GPA-member-states would enjoy unfettered access to developing-country PP markets under such regimes.
The drafting issues in India were not fully addressed in the PP Bill presently before Parliament, as nationality of bidders is not explicitly listed as a permissible criterion for discrimination: a position that seems to depart from the National Manufacturing Policy that requires minimum domestic content for hi-tech government supplies, as well as from the Policy for Preference to Domestically Manufactured Electronic Products that requires mandatory preferences to domestic bidders/domestically-manufactured electronic goods in government procurement.
Significantly, the PP Bill also covers PSUs along the lines advocated under the UNCITRAL Model Law. In contrast, China excludes PSUs from its PP Law; Mexico and Brazil have crafted special procurement frameworks for PSUs that compete in international commercial markets; and the US and EU do not impose intrusive PP obligations on domestic companies receiving government funding through R&D grants and cost-reimbursement contracts. The Indian formulation may therefore need improvements so as to allow for efficiency and economy in PSUs' functioning or their ability to pose any credible threat of competition to in commercial marketplaces, both in India and abroad, could be seriously eroded.
The problem with copy-paste law-making extends deep into state formulations: a recent Kerala draft PP Bill is an exact replica of the Central PP Bill in its entirety, including the phrase "national security" borrowed into the Kerala version, notwithstanding that "security of India" is not exactly a state function under our Constitution.
Similar issues had been witnessed in Rajasthan also: in their zest to have a PP law ahead of the central law, the state Act allowed competitive negotiations as a permissible method of procurement - not fully realising that competitive negotiations is fraught with serious integrity risks; has virtually no parallels or precedents in India; and requires specialised skills and intrusive oversight. Its consultants possibly copy-pasted from the first draft PP Bill published by MoF - a provision that was subsequently removed in the second public version but not brought to the notice of the state government. In addition, lack of proper inputs seem to have reduced operational clarity for procurement officials and potential bidders alike in Rajasthan, rather than reforming the procurement landscape as intended. As an example, while Rajasthan General Financial & Accounts Rules, right since the 1970s, were clear on procedures for debarment of erring suppliers (also sometimes called banning or blacklisting of suppliers in India), under the new framework in the state, there is no equivalent clarity on many practical aspects such as coverage of sister concerns of a debarred entity, or extension of debarment to existing/future contracts.
Some lessons can therefore safely be drawn from available experience on the subject in India. Firstly, given that public procurement is a routine administrative activity essential to fulfilling citizens' expectations in a timely fashion on larger government programmes, procurement reform should be driven by genuine administrative needs and concerns, rather than being driven for optical reasons that relegate efficient procurement to a secondary role. Secondly, there may be a clear need to enact different rules for procurement for government use vis-à-vis procurement by PSUs operating in commercial domains. Thirdly, given wide-spread tendencies of countries using procurement rules to restrict foreign goods and bidders in order to foster their own manufacturing and services' competitiveness, law-makers in India may need to keep themselves aware of the possibility of hidden agendas and vested interests using transparency and anti-corruption arguments as proxies for increased but non-reciprocal market access. Finally, research-based law-making must necessarily take centre-stage, rather than ad-hoc processes, competitive populism and artificial timelines for enactment that tend to compromise on the duration and quality of deliberations and decision-making on a subject of such vital national importance.
The writer is a civil servant. These views are his own
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