Just retail therapy….M K VENU
Bringing transparency to government contracts is an overdue reform
Bringing transparency to government contracts is an overdue reform
Last December, UPA Chairperson Sonia Gandhi had passionately advocated the need to “intensify the battle against corruption” and had spoken of the need to “ensure thorough legislation and clear procedures, full transparency in public procurement and contracts”. After her intervention, the government decided to set up a group of ministers (GoM) under Finance Minister Pranab Mukherjee to consider various systemic changes to tackle corruption. As part of this exercise, the GoM appointed an 11-member committee, headed by former Chairman of Competition Commission, V.K. Dhall, to recommend how the current public procurement system can be overhauled and made as corruption-proof as possible.
The committee has come out with a voluminous 180-page report with many interesting recommendations, including one to evolve a comprehensive public procurement law which legally binds the government to follow certain established and transparent procedures while procuring billions of dollars worth of equipment and services. A proposed law would at once do away with the element of bureaucratic/ political discretion in handing out contracts. Private suppliers can also take the government to court if the law is violated in any manner.
However, it is not clear whether these recommendations will ever see the light of day because much of the procurement-intensive bureaucracy is already resisting any drastic change to the present system which is decidedly opaque and non-transparent.
More pertinently, the ministries of railways and defence, with very high annual procurement programmes, have declared that the present system is adequate in their respective contexts. Representatives of railways and defence on the committee have also appended dissent notes to explain why the new system of public procurement does not necessarily suit their needs.
Another exasperated member has given a dissent note saying the very purpose of evolving an alternative public procurement system gets defeated if representatives of government departments, with high levels of annual procurement, are kept on such committees. There is an obvious conflict of interest as no one will admit to his or her department’s non-transparent methods.
To understand the opaqueness of procurement policy it might be instructive to go into the functioning of the railways. The committee report clearly says the railways’ procurement system is violative of the General Financial Rules (GFR), an internal set of guidelines laid down by the finance ministry which all departments have to follow at present. The committee envisages the GFR will eventually be dovetailed as rules and procedures into the Public Procurement Act to be passed by Parliament.
Broadly, the GFR lays down rules of open and competitive bidding process to help get the best deal for the government’s bulk purchases. The railways, which do about Rs 20,000 crore worth of procurement annually, put only about 5 per cent of its total purchases under an open bidding system. Nearly 95 per cent of purchases are done under what is called a pre-registered vendors system. Not being registered acts as an entry barrier because it takes from 300 to 530 days to register as a vendor. The Central Vigilance Commissioner has described the railways as its biggest client in terms of the number of complaints received against their procurement system.
So 95 per cent of railway procurement is from pre-registered vendors, a sort of government induced cartel of vendors. The committee has said this violates the spirit of GFR which seeks open bidding allowing new vendor participation.
Of course, in his dissent note, the railways representative on the committee has justified the pre-registered vendor system as one based on the Railways Reforms Committee 1983 set up by Parliament which had mandated that a proper rating system of vendors be evolved based on quality and contract performance. The railways have argued this is essential because safety issues prohibit them from experimenting with new vendors whose track record is not established.
This seems like a specious argument because much of technology in the rail sector is fairly commoditised and the track record of equipment performance is globally well established these days.
The ministry of defence has probably the largest procurement programme. In 2011-12 alone, equipment procurement is of the order of about Rs 70,000 crore. This is expected to grow at an annual rate of 18 per cent, which means procurement will touch about Rs 1,40,000 crore a year by 2017. Mind you, annual capital purchases by the defence ministry was less than Rs 13,000 crore in 2002.
The sheer scale of increase in defence purchases might dictate that new institutional systems be created to deal with the enormity of the task. However, the ministry of defence is also resisting change. The dissent note by the defence ministry representative to the Dhall Committee says competitive bidding process is not feasible as “a significant amount of defence procurement, both in India and abroad, is a single-source procurement. This is inherent in defence procurement because of high design and development costs, lumpy capital investments, long gestation lags and uncertainty of flow orders”. Procurements therefore have to be made on a single-source basis. So any number of reasons are being given to avoid reform of the government procurement system.
The overall impression one therefore gets is that key government departments are not interested in procurement reform in spite of the mandate having come from the highest political level. Like the railways and defence, other government departments will also stonewall critical reforms in the procurement system.
As civil society exhausts itself debating the Lokpal bill, little attention will be paid to the proposed public procurement legislation which has the potential to attack corruption like no other law can. The big crisis today is that the state is just unable to scale up its institutional response to the task of spending cleanly and efficiently. That has led to more corruption and waste even as government expenditure has burgeoned to Rs 11,00,000 crore in 2010-12 from less than Rs 4,00,000 crore a decade ago. Sometimes spending money well is a bigger challenge than earning it. The telling picture in newspapers of hundreds of brand new ambulances parked in a yard by the Mayawati government is symbolic of our skewed public procurement policy. The Commonwealth Games scam was all about mala fide procurement. Bad public procurement system is at the heart of corruption. Mounting an institutional response is a key political challenge for the UPA.
The writer is managing editor, ‘The Financial Express’; mk.venu@expressindia.com