Trade policy review report by the secretariat



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3.3.4  Government procurement

3.3.4.1  Overview


              1. Since 2012, the use of e-procurement has become the norm in government procurement in India. All ministries/departments of the central government must use e-procurement to publish all tender enquiries (from 1 January 2012), CPSEs from 1 February 2012, and autonomous/statutory bodies from 1 April 2012.154 On 5 October 2012, the Department of Telecommunications issued a notification concerning its policy for according preference to domestically-manufactured telecom products in procurement due to security considerations.155

              2. India is an observer to the WTO Agreement on Government Procurement. Its procurement system continues to be decentralized, comprising an array of entities at various levels of government (central, state and local) in addition to numerous CPSEs. There is no central agency responsible for regulating public procurement at a national level and no common legislation governing procurement at different levels of government and by CPSEs. Consolidated data are not available on the economic significance of government procurement, including a breakdown of the value of contracts by the tendering method. The authorities state that India is in the process of formulating a comprehensive government procurement legislation that is applicable to all parts of the central Government; the legislation is also intended to accommodate requirements of the WTO Agreement on Government Procurement.

              3. Whereas the central Government has reservations and price preferences as part of the procurement system, competition from foreign suppliers is ordinarily allowed in tenders advertised in India. If procurement is restricted to domestic manufacturers/suppliers, it is clearly indicated in the tender notification.

              4. Certain control and oversight functions are carried out by central authorities, such as the Comptroller and Auditor General and the Central Vigilance Commission. Procurement decisions at the central level are subject to audit by the Comptroller, and to legislative review and judicial scrutiny. There is a similar system at the state level. Public procurement carried out at state level is also subject to audit and oversight by the respective state vigilance departments, auditors, and judiciary. Some States (Karnataka, Rajasthan, and Tamil Nadu) have also passed laws to regulate public procurement.

              5. Disputes regarding procurement should be resolved in the first instance through consultation. If the parties fail to resolve the dispute within 21 days, either party may give notice to the other of its intention to commence arbitration. For contracts with domestic suppliers, the applicable arbitration procedure is under the Indian Arbitration and Conciliation Act 1996. If the contract is with a foreign supplier, the supplier may chose arbitration either through the Indian Arbitration and Conciliation Act 1996 or the United Nations Commission on International Trade Law (UNCITRAL).156 Remedies regarding public procurement contracts may also be sought under the provisions of the Indian Contract Act 1872, the Specific Relief Act 1963, and the Sale of Goods Act 1930. A public procurement process may be subject to judicial review before a High Court in India on grounds of, inter alia, arbitrariness, fairness in action, bad faith or violation of a fundamental or legal right enshrined in the Constitution of India.157

              6. Under India's competition law, collusive bidding or bid-rigging in the context of government procurement is one of the horizontal agreements that is considered to have an adverse effect on competition. The CCI has the competence to determine whether collusive bidding or bid-rigging is anti competitive. However, the CCI only makes an enquiry if there are complaints of an alleged contravention. After the enquiry the CCI might direct the parties to review the agreement and may impose a penalty if it deems necessary.

3.3.4.2  Regulatory framework


              1. The current regulatory framework for India's public procurement includes the General Financial Rules (GFRs), 2005; the Delegation of Financial Powers Rules (DFPR); the Manual on Policies and Procedures for Purchase of Goods issued by the Ministry of Finance; Government orders regarding price or purchase preference or other facilities to sellers in the handloom sector, cottage and small-scale industries and to CPSEs; and the guidelines issued by the Central Vigilance Commission to increase transparency and objectivity in public procurement. There are also sectoral laws such as the Telecom Regulatory Authority Act 2000, the Electricity Act 2003, and the Petroleum and Natural Gas Board Act 2006, which also regulate public procurement. In addition, various Government instruments and agencies including ministries and departments (e.g. the Public Works Department and the National Highways Authority of India) have their own public procurement system.158

              2. The various ministries or departments have full powers to make their own arrangements for the procurement of goods. However, if they do not have the required expertise to procure goods, procurement may be carried out through the Directorate General of Supplies and Disposal (DGS&D), the central purchase organization, with the approval of the competent authority.159 The DGS&D keeps a registry of manufacturers/suppliers and Indian agents of foreign manufacturers, and arranges the clearance of imported goods purchased by central Government departments.

              3. The applicable procurement method depends on the value of the contract to be awarded and other factors (e.g. emergency situations) as stipulated in the GFRs 2005. The splitting of purchases into contracts of smaller value is explicitly forbidden. The procurement methods are: invitation to tender; limited-tender enquiry; single-tender enquiry; purchase of goods by purchase committee; purchase of goods without quotation; and purchase of goods directly under rate contract.

              4. The DGS&D concludes "rate contracts" for goods identified as "common use items" and needed on a recurring basis by various central Government ministries or departments. The ministries or departments must follow those rate contracts to the maximum extent possible. A rate contract is an agreement between the purchaser and supplier to supply stores (i.e. goods) at specified prices during the period covered by the contract. However, no quantities or minimum purchase requirements are mentioned in the contract. Supply orders may be placed with any of the firms holding a "rate contract" directly by the authorized officers of the central Government ministries/departments or by the DGS&D.

              5. The DGS&D prepares lists of eligible and capable suppliers of commonly purchased goods. The National Small Industries Corporation (NSIC) also registers MSEs, under the single point registration scheme; this is considered equivalent to DGS&D registration. MSEs registered under the scheme are exempt from payment of fees related to the issue of the tender and of earnest money and security deposit; they also benefit from the preferences reserved for MSEs (see below). Registration is granted for a fixed period depending on the nature of the goods, and may be renewed upon application.

3.3.4.3  Preferential policies at the central Government level


              1. India retains preferential treatment in government procurement from MSEs. On 23 March 2012, the Government announced that the central Government ministries, departments and public sector undertakings will be obliged to procure a minimum of 20% of their annual procurement in value from MSEs starting as from 1 April 2015.160 The order also earmarked a sub target 4% procurement of goods and services, out of the 20% from MSEs owned by Scheduled Caste or Scheduled Tribe entrepreneurs.161

              2. Reservations exist for MSEs and for certain products. MSEs receive purchase and price preferences in procurement by central Government ministries/departments and CPSEs. Under the purchase preference system, 358 items have been reserved for exclusive procurement from MSEs (Table A3.1) and 20 items for exclusive manufacturing in the micro- and small sectors. The purchase preference system offers price preferences of up to 15% to MSEs over the quotations provided by large scale industries. MSEs are also assisted through the: (i) issue of tender sets free of cost; (ii) exemption from payment of "earnest money" (deposits) and transparent criteria. Under the present Government purchase and price policy for MSEs, the Government has been extending various facilities to the MSEs registered with the NSICI under its Single Point Registration Scheme.

              3. The central Government has reserved all items of handspun and hand woven textiles (khadi goods) for exclusive purchase from the Khadi and Village Industries Commission (KVIC). The central Government purchases all items of handloom textiles exclusively from the KVIC and/or the Association of Corporations and Apex Societies of Handloom, and coir products from the Coir Board.

3.3.4.4  Procurement of services


              1. When outsourcing services, a limited tender enquiry is used if the estimated value of the work or service is Rs 1 million or less. Eligible bidders are on the ministry/department's list of potential contractors. This list is prepared through formal or informal enquiries with other ministries and organizations involved in similar activities and research in trade journals. At least three contractors must be identified for issuing a limited tender enquiry. If the estimated value of the work or service is more than Rs 1 million, an advertised tender enquiry must be published in at least one popular largely circulated national newspaper and on the ministry/department's website.

3.3.4.5  Procurement at the state level


              1. Some states (e.g. Tamil Nadu and Karnataka) have enacted a law exclusively governing public procurement of goods. Nonetheless, in most states the GFRs govern procurement and are based on the central Government GFRs.

3.3.4.6  Procurement in the railway and other specialized sectors


              1. Since India's previous Review, there have been no major changes to procurement in the railway, postal system, telegraph, and defence industries, which is subject to specialized procedures developed by the ministries responsible, within the overall framework of the GFRs 2005. In general, competition from foreign suppliers is allowed in respect of high technology or high-value items. For procurement in railways, foreign firms are free to participate in tenders advertised in India only, but payment against such contracts must be received in Indian rupees on par with indigenous suppliers. Global tendering is frequently used in procurement of rolling stock, wheels, machinery and plant equipment, including technology transfer. Indian Railways evaluates all offers based on the total destination cost. Domestic goods bids are evaluated based on freight up to destination including all taxes and levies. Offers from abroad are evaluated based on the c.i.f. value of imports and customs duties, but inland freight is not taken into account.


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