Issues in Public Procurement – The Public Procurement Bill 2012

The prime objective of any government procurement is getting the right product or service, at the right price and quality and at the right time. Government Procurement accounts for approximately 20% of India’s GDP. However, public procurement processes, which are governed at the Centre by the General Financial Rules, 2005, are widely perceived to be vulnerable to corruption, collusion, fraud and manipulation. Therefore, there is a need for a single set of robust guidelines for public procurement in India which would mitigate the current situation.

In order to strengthen the public procurement process, the Government of India has already taken a stand to streamline all public procurement. As a first step, the government, through the Ministry of Finance, has formulated a draft Public Procurement Bill 2012 which will govern the procurement process for all central government and PSUs in the country.

The Draft Procurement bill 2012 however faces the challenge of aligning all other regulations and legislations that impact Public Procurement in India. This includes alignment in the areas of ‘green’ procurement, support to innovation, appropriate penalties for both vendor and procuring entity alike, vendor development programmes for SMEs and a mechanism for procurement based on lifecycle costs.

Green Procurement

As advised by the Prime Minister’s Climate Change Council, all government procurement in India is scheduled to go ‘green’ by mid 2013. Under the PMO’s directions, the Planning Commission has set up a core group comprising senior representatives from government departments, including BEE, DGS&D, MoEF, CPCB, Defence, Railways, and select industry associations like CII. 

As a part of the move towards green procurement, BEE has sent a proposal to DGS&D today for procurement of energy efficient goods. Should this be accepted by DGS&D, then for future procurement DGS&D would either give a ‘preferred vendor’ status to suppliers who comply with the BEE labeled products (laptops and Office Automation equipment for now) or the next Rate Contract could be only for products which are energy efficient as per the India specific requirement, which is BEE labeled.

While this effort is laudable in itself, it throws up two distinct challenges for procurement which are (a) there is need for a crisper definition of ‘green’ and (b) there is a need to have clear processes for managing the labelling on imported products such as office automation products, such that when their packaging are opened locally for inserting the required labels, such products should not treated as second hand products.

Support to Innovation

DGS&D procurement rules follow a process whereby unless there are a minimum of three bidders who can supply to the specifications in the Rate Contract, the RC stands cancelled. By definition, an innovative product will be the only product in the market in the initial stages. The current process prevents the innovative company the chance to bid, thus inadvertently discouraging procurement of innovative products. While the PPB 2012 allows single vendor procurement under specific conditions, there needs to be a clear connect between the Bill and the DGS&D rules in this respect.

The matter is further compounded by the fact that the procurement processes prevent product upgradations midcourse through a rate contract. This raises challenges for the IT industry, as rate contracts are typically for one year, while there are component upgradations every quarter. Under the current norms, each upgradation would necessitate a revision in the specifications outlined in the rate contract. The OEMs are thus in a position where they may have to stock up a year’s supply to provide obsolete products to the government. It is a lose-lose situation. The PPB should allow for product upgradations as and when industry moves forward, as long as there is no upwards price revision.

Disproportionate penalties for vendors and procurement agencies

As per PPB 2012, it is mandatory for all potential vendors to inform the procuring entity on any blacklisting of the vendor by any government agency across the world in the previous three years. Based on that information, the Indian government reserves the right to debar the vendor for a period of two years from bidding for any rate contracts. Given the complexities of doing business with various kinds of government agencies globally, the above clause would essentially debar almost all multinational vendors. This clause requires rationalization in order to strengthen the procurement process.

Public Procurement is a challenging issue. Besides the above challenges, Public Procurement also need to address issues of vendor development programmes for SMEs and a mechanism for procurement based on lifecycle costs. The PPB 2012 is a step in the right direction that needs to be further strengthened with the above guidelines/clauses.

Cloud Computing: The Potential Next Generation Export of IT Services

Cloud computing is fast changing the paradigm of computing and of compute consumption. Rightfully, India is enthusiastically adopting Cloud Computing to solve its compute infrastructure issues. Cloud computing is considered as a disruptive IT delivery model that allows software/hardware services to be delivered remotely through the Internet. The public cloud computing market in India is expected to grow tremendously in the coming years.

However, India and Indian policymakers are viewing Cloud Computing primarily as a mechanism to solve the compute infrastructure issues. Cloud Computing services could also become a significant IT services export from India.

As India is uniquely positioned to become a low cost, high quality provider of Cloud Computing in all its forms, including IAAS, PAAS, SAAS and its myriad other iterations. The primary constituents for setting up a Cloud Computing infrastructure are readily available in India, such as (a) hardware infrastructure, (b) infrastructure software, (c) cloud enabled application software, (d) connectivity, (e) skilled manpower (f) electricity and (g) cooling.

Given the focus on local manufacturing in hardware, India is soon going to become the hub of IT manufacturing, thus leading to reduced cost of setting up of hardware infrastructure. Also, setting up of cloud infrastructure would also increase the market demand for the associated computing equipment, thus making it lucrative to increase IT manufacturing in the country, thus forming a virtuous cycle of increasing market and reducing prices.

India is already a global powerhouse in software, both infrastructure software and application software. Hence, India would have the competitive advantage of providing Cloud Computing because of its software prowess. Exporters of Cloud computing service, would also provide a platform to application developers to tap international markets which otherwise involves significant cost of sales through alternate sales channels. So again, a virtuous cycle will be formed with Cloud computing service exports attracting application developers to access larger global markets which in turn would reduce the cost of providing applications from India.

Thanks to the aggressive rolling out of broadband and connectivity under the programs of the Government, India would in the near future be one of the most well-connected economies in the world. This would enable India to be highly competitive in providing Cloud Computing.

Coming to the issue of electricity, it would be prudent to locate such cloud computing infrastructure close to cheap, inflation-proof sources of electricity. The areas close to Hydel power would be ideal for such infrastructure.

Given that India has large number of such locations in the Himalayan states such as Himachal Pradesh, Uttarakhand, J&K, Sikkim and the rest of North East, it would be a obvious to locate Cloud Computing parks in such locations.

These Himalayan locations also provide natural cooling, thanks to the perennial snow cover, thus further reducing the cost of operations for Cloud computing infrastructure.

Thus, to propel India into becoming an exporter of Cloud Computing services, it is imperative that appropriate policies are adopted to notify and create Cloud Computing Parks in the Himalayan States, with sufficient bandwidth. In addition, focus should be put on trans-border legislations that inhibit the export of Cloud Computing Services.

But what if after making considerable investments in setting up Cloud Computing parks, the exports don’t take off because of say trans-border legislations ? The investment into rolling out the internet bandwidth and the associated infrastructure for the cloud computing parks will not get used as they would immediately get re-purposed for delivering education, health and other social services to the local communities.

What is important to note, Cloud computing is a natural monopoly as it benefits from economies of scale. Thus, the first movers of Cloud computing and gain scale and thus reduce cost of delivering Cloud computing, making it difficult for late entrants to compete. Hence, if Government of India hesitates in setting up such Cloud Computing Parks, other nations will get into this space, with India missing this bus.