Government Procurement in India

The Indian government procures goods and services worth approximately 15-20% of the GDP, equating to about ₹60 trillion annually. This procurement process is central to public finance, emphasizing the importance of expenditure efficiency.

Challenges in Government Procurement

• Government procurement in India is often influenced by political factors, serving as a tool for patronage, industrial policy, or protectionism.
• The system is riddled with inefficiencies, including limited competition, delays, cost overruns, and complexity.
  • Many tenders attract few bidders, sometimes only one, leading to higher prices.
  • The process is perceived as opaque with uncertainties in payment and dispute resolution.

Impact of Protectionism

• India's reluctance to open government procurement to foreign companies stems from protectionism, evidenced by the Public Procurement Order (2017), which favors domestic manufacturers.
• This approach reduces competition, discourages innovation, and ultimately costs taxpayers through higher prices and lower quality services.

Recent Developments

• India has made strides in government procurement through various Free Trade Agreements (FTAs), including with the UAE, Australia, and the UK.
• These agreements mark a shift towards greater competition and fairness in procurement practices.

Future Strategies for Improvement

• Strategies should be two-pronged:
  • Expand FTA Initiatives:
    1. Pursue FTAs with wider trading partners and more sectors.
    2. Lower participation thresholds for foreign entities.
  • Reform Domestic Procurement Processes:
    1. Enhance Efficiencies: Strengthen documentation and transparency using digital information management systems. 
    2. Develop Human Resources: Train procurement officials in contract design, negotiation, and project management. 
    3. Establish Dispute Resolution: Create independent mechanisms for resolving disputes without the risk of blacklisting. 

Improving government procurement is critical for enhancing state capability and delivering better public services. The recent FTA initiatives are promising initial steps towards achieving these goals.