India is the fifth largest economy in the world as per World GDP Ranking 2023 list with United States of America, China, Japan, Germany economies ahead of it. India has been able to maintain its fifth position, lead over United Kingdom with growing domestic demand, strength of macroeconomic fundamentals, high saving rates and commendable fiscal discipline and is expected to grow at a rate of 6.5% in 2023-24.
Public procurement amounts to 20-22% of a nation’s GDP and therefore an efficiently run public procurement process is critical to our nation’s economy. A well-functioning and efficient public procurement system helps the development process by improving the strategic and efficient allocation and utilization of government expenditure i.e. public procurement.
Public procurement is the procurement of goods, services and works on behalf of a public authority, such as a government agency. Globally, government procurement accounts for a substantial part of the global economy. Governments, just like private companies, have to buy goods and services for their operational needs. Procurement of goods and services is carried out by various ministries, departments, municipal and other local bodies, statutory corporations and public undertakings both at the Centre and at the State level.
GeM was established in 2016 to provide Government buyers an end-to-end digital platform to carry out public procurement of goods at cost-effective rates. GeM aims to enhance transparency, efficiency and speed in public procurement. It provides the tools of e-bidding, reverse e-auction and demand aggregation to facilitate the government users, achieve the best value for their money. GeM’s transparent practices, such as competitive bidding, have helped government departments and public sector undertakings save about INR 40,000 crore of taxpayers’ money. Such initiatives have helped the government substantially raise welfare expenditures without compromising fiscal health.
As public procurement utilizes a substantial portion of taxpayers’ money, government bodies are expected to follow strict procedures to ensure that the process is fair, efficient, transparent and minimizes wastage of public resources. To prevent fraud, waste, corruption, or local protectionism, the laws of most countries regulate government procurement to a greater extent. Laws usually require the procuring authority to issue public tenders if the value of the procurement exceeds a certain threshold. Government procurement is also the subject of the Agreement on Government Procurement (GPA), a plurilateral international treaty under the auspices of the World Trade Organization.
The increasing volume of public procurement opportunities in India, coupled with the scale and magnitude of government projects, holds tremendous economic potential for both local and overseas companies. The recent upward trend in procurement opportunity in India can be attributed to a variety of measures and initiatives.
The legal and regulatory public procurement framework in India broadly comprises the following elements:
In summary, a public procurement process must adhere to: (i) GFR and MPG; (ii) sector-specific procurement rules contained in manuals published by the relevant ministry; and (iii) state-specific legislation on transparency in procurement. As between the procurer and the supplier, these rules above flow down via a tender award and a contract.
Government has issued Public Procurement (Preference to Make in India) to encourage ‘Make in India’ and to promote manufacturing and production of goods, services and works in India with a view to enhancing income and employment. This Order is issued pursuant to Rule 153 (iii) of the General Financial Rules 2017. The salient features of the aforesaid Order are as under:
GeM has grown significantly, from nearly ₹8,500 crore in FY21 to nearly ₹1,82,000 crore in FY24. GeM has harnessed digital capabilities and has emerged as a one-stop-shop for procurement of all possible services that may be required by Government buyers at various levels of administration.
As we look ahead at the future of public procurement in India, a key focus for GeM is going to be the enhancement of the quality of the platform and the transactions therein, in parallel with building and sustaining the trust of buyers and sellers. To drive this involves four separate enablers:
As a digital platform, GeM to enhance use of data and related technologies like AI/ML, blockchain, etc., along with focused teams driving initiatives and programs around risk and fraud control. The technology-led approach, underlined by GeM’s commitment to the principles of transparency, efficiency and inclusiveness, will slowly and surely usher in the highest standards of quality in public procurement in India while also providing the buyers and sellers a fair, competitive and feature-rich platform for engaging in procurement activities.
India’s regulatory and institutional framework seeks to ensure responsibility, accountability and efficiency in the public procurement regime. The underlying principle is to procure materials/services of specified quality at the most competitive prices in a transparent and non-arbitrary manner. Typically, various processes in Public Procurement involved include
This is evident in the GFR which declares that all authorities delegated with the financial powers of procuring goods in public interest will be responsible and accountable to ensure efficiency, economy and transparency, fair and equitable treatment of suppliers, and the promotion of competition in public procurement. To this end, specific measures have been set out under the GFR including adherence to a code of integrity to address probity issues, etc.
Further, the Supreme Court of India has recognised that while the government must have freedom of contract:
The regulatory framework covers all contracts offered by the government at the central, state or local level. Examples of types of contracts covered include PPP contracts, concession agreements, operation and maintenance contracts, engineering procurement and construction contracts, supply of equipment, supply of services, transfer of technology, etc.
There is no comprehensive central legislation exclusively governing public procurement in India. Instead, the public procurement regime comprises a framework of overlapping administrative rules and guidelines, sector-specific manuals and state-specific legislation.
Transparency, competition and curbing of probity issues are further ensured through:
One of such major initiative of Government of India (GOI) is that, foreign investors are today being granted greater access to the breadth of India’s market than ever before. GOI has further liberalized investment and increased foreign direct investment inflow into India, easing investment caps and opening up previously restricted sectors to overseas investors.
Another such an initiative towards modernizing existing infrastructure and equipment has also resulted in a number of procurement opportunities. Other new initiatives such as “Digital India” and “Make in India” are geared towards improved physical and social infrastructure, connectivity and local design and manufacturing capability. Nonetheless, working with the government can be a mixed bag of opportunities and challenges, and business exposure to the public sector is not without legal and compliance risks.
The principle underlying India’s public procurement regime is the acquisition of materials and services of specified quality at the most competitive prices, in a transparent and non-arbitrary manner. Nonetheless, the absence of a central procurement regulation enabling procuring authorities with scope to tweak guidelines and contract format, leads to confusion on one hand and rigidity on the other. In fact, different agencies may even prescribe varying qualification criteria, financial terms, selection procedures etc. for similar public sector work.
Suppliers supplying goods and services to the Indian government must carefully navigate the convoluted procurement framework. Falling foul, inadvertently or otherwise, of any procurement conditions under the tender documents or the aforementioned rules and guidelines could result in the tender award being challenged / disqualified and the contract cancellation, and the supplier being blacklisted for up to 3 years.
In addition, supplying to the government may involve some unique risks and practical concerns, such as
In the absence of any specific law, public procurement and other related financial matters are governed by GFR 2017 promulgated by the Ministry of Finance. These rules are applicable to all central ministries and their attached and subordinate bodies. These are also deemed to be applicable to the autonomous bodies which do not have their own government-approved financial rules.
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