How does the Government of India give a boost to “Make in India”? The first and simplest option is buy Indian itself. With public spending or procurement amounting to as much as 15-40% (estimates vary by small or big government and categorization of spending) of a countries Gross Domestic Product (GDP), public spending is the natural first option for the different “Make Local” policies and an arena in which the government can show quick results.
Recognizing this, the Department of Industrial Policy and Promotion (Ministry of Commerce and Industry, Government of India), which was mandated to push the mission “Make in India”, to issue numerous policy circulars arguing for “Preference to Make in India”. This was well within the rules provided by GFR 2017 (Rule 153(iii)). But here comes the dichotomy…..
We want public procurement to be transparent, fair, economical, least price, efficient, equitable, and …… but we want to give a preference. However, this is not the first time that public procurement had faced such a dichotomy. This is an old fight… When quality and price compete, price wins in public procurement!; when delivery and price compete, price wins again in public procurement; when long term output compares with short term price decisions, price wins. So what happens in the “Make in India” program…
The policies of Government of India targeting “Make in India” stipulates that bidding in public procurement be done in the normal fashion and the L-1 bidder identified. If it is a local (eligible) Make in India go ahead. Otherwise, allot it part of quantity and let the lowest bidder in the local suppliers match the L-1 price! Price one, and Make in India lost! AGAIN!
Two alternatives exist. ON one hand, if a local bidder could produce and deliver at the L-1 price, than why did it quote at a high price? Presumably it was trying to be opportunistic in its price. On the other hand, if the local bidder cannot produce and deliver at the L-1 price (due to legacy issue, economies of scale, technology disadvantage, etc.) then it is suicidal on its part to match the L-1 bid and make a loss in supplying to the government. Then, why have this system — because L-1 is the mandate, and is the single biggest aim of Public Procurement. BUT, IS IT? We just now argued “Make in India” was also an objective! How does one resolve this.
This is a tricky issue, and no perfect solutions exist. However, the first step lies in recognizing this problem, and probably experimenting with a few approaches before finalizing on to one. Here are some options..
a) Alternate selections: L-1 bidding is not the global norm for public procurement. Why should it be? Best / Highest Value should be the norm and not the lowest quoted price. The fundamental problem with L-1 is even ex-ante quality and delivery shading to win the price bid. Multiple solutions have been tried out for this. To name a few…
i) Vickery Auction — L-2 bid selection. The person who shades quality or delivery maximum is not the winner, but instead the next best person. There is no race to the bottom. However, there is an strong assumption that we have a highly competitive market, with no natural advantages for anyone.
ii) Average bid price auction — Median or Average bid price again makes a strong assumption of a competitive market, and expects the average or median bid price to reflect the true price of the product.
iii) Buyer determined reverse auction — Herein, reverse auction is held, however the buyer has a predetermined (and published criterion) based upon which it would select the bidders.
b) Quality-cum cost bids — If quantification of quality is possible, quality and cost need be weighted for finalization of bids– Our GFR however restricts this consultancy work only.
c) Reassessing public procurement limits — Financial limits for open or selected vendor bidding, limits for proprietary products or services purchases, limits for marketplace purchases, and the like have all been based upon market availability. Such limits are a global norm. However, the rigidity in these norms is not a norm. It may be required to base these limits on the need of the purchaser, rather than driven by the market. Trust and reliance has to creep in into the procurer, empowering him/her to use discretion.
For long we have made L-1 the scape-goat of most of public procurement ills. Most other ills of public procurement like insufficient specification, no use of discretion, lack of vendor development, missing partnership arrangements etc, have all been blamed on L-1. It is time we let go of L-1 go, experiment with some alternatives, and work towards improving the procurement process rather than hide behind lame excuses.
Swapnil Garg September 22, 2019
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