Public Procurement in India entails the government’s acquisition of goods and services from private companies, compensating them monetarily for the provided goods and services. The process involves a structured approach to ensure responsibility, accountability, and efficiency in the Public Procurement Policy. The core principle is to acquire resources and services of a certain standard at the most competitive cost, following a transparent and non-discriminatory approach. In this blog, we shall see in detail about Public Procurement Policy for MSMEs.
Public Procurement Policy for MSMEs
The objective of the Public Procurement policy for MSMEs in India is to encourage MSME registration and support them in showcasing the products and services they provide. This policy is designed based on essential principles of promoting competitiveness, guaranteeing robust procurement performance, and executing contracts in a fair way.
How Does Government Execute Public Procurement Policy for MSMEs?
The govt follows the below mentioned procedure to execute the Public Procurement policy for MSMEs in India:
Advertised Tender Enquiry
Advertised Tender Enquiry is the primary approach to procurement employed by the government. In this method, tenders are publicly advertised on various platforms, including Government Websites, National Newspapers, the Central Public Procurement Portal, Indian Trademark Journal, and Government E-Marketplace. Additionally, they are distributed to Foreign Embassies to ensure wide exposure.
Limited Tender Enquiry
Limited Tender Enquiry involves procurement from a pre-selected pool of suppliers. The government compiles lists of eligible vendors through a screening process and directly invites them to participate in the bidding process.
Two-Stage Bidding
The government solicits bids in two stages: Technical and Financial. This approach allows for a comprehensive evaluation of the procurement process.
Nomination-Based Tenders
Some tenders are initiated through a nomination-based process, where the government directly calls for specific suppliers or service providers.
Procurements Without Tender Calls
This method is typically reserved for low-value purchases that meet standard qualifications, obviating the need for a formal tendering process.
Electronic Reverse Auction
Electronic Reverse Auctions involve bidders submitting sequentially improved bids during a scheduled period. Routine evaluations of these bids are conducted, facilitating cost-effective procurement.
Government-to-Government Transactions
Government-to-Government transactions encompass the exchange or sale of a nation’s defence equipment, services, training, and related items to foreign governments. This method is used for international dealings involving defence and strategic assets.
Legal Framework for Public Procurement Policy for MSMEs in India
The legal structure for Public Procurement Policy for MSMEs in India includes:
Constitutional Provisions
The Constitution of India grants authority to the Central and State Governments to conduct procurement for goods and services, emphasising financial autonomy in public spending. However, it does not specify procurement policies or procedures. Article 282 addresses financial autonomy but lacks provisions for addressing grievances.
Legal Provisions
A Public Procurement Bill was introduced in Lok Sabha in 2012 but was not passed. It was reintroduced in 2015 with a similar outcome. Currently, there is no central legislation in India governing public procurement of goods and services. The major legal provisions for Public Procurement Policy for MSMEs are covered under the following statutes:
Competition Act, 2002
The Competition Act, 2002, addresses anti-competitive activities such as bid rigging, collusive bidding, cartelisation, and abuse of dominance in public procurement.
Right To Information Act, 2005
The Right to Information Act, 2005, promotes transparency by allowing Indian citizens to obtain information from the government through the “Right to Information” application.
Integrity Pact Under the General Financial Rules (GFR) & CVC Guidelines
Integrity Pact addresses integrity issues in procurement, including the appointment of external monitors to prevent corruption and ethical risks.
Prevention of Corruption Act, 1988 & Prevention of Money Laundering Act, 2002
These acts penalise bribery, money laundering, and provide for the confiscation of property derived from money laundering and other illicit activities.
Supreme Court Directions
The Supreme Court has provided key directions related to Public Procurement Policy for MSMEs in India, including:
1. Contracts by the State should be awarded through public auctions or tenders to ensure transparency and equal participation.
2. All official acts should be driven by public interest and inspire public confidence.
3. The State should not award contracts through private negotiations, except under specific exceptions based on trade nature or emergency circumstances.
4. Government actions should be fair and avoid any appearance of bias, favouritism, or nepotism, emphasising the importance of public justice and justice itself.
Issues in India’s Public Procurement Policy for MSMEs
Some major issues with the Public Procurement Policy for the MSMEs are as follows:
Absence of Comprehensive Procurement Act
The absence of a comprehensive procurement act has led to a multitude of procedures and rules across procuring entities, making it challenging to take comprehensive actions against stakeholders engaged in unfair practices.
Lack of Standard Bid Documents
The lack of standardised bid documents and contract codes, despite international standards set by organisations like the IMF and World Bank, results in diverse bid documents across industries. This diversity hinders standardisation, transparency, and accountability.
Delays in Procurement Activities
Delays in the procurement process often occur during needs assessment, budget preparation, and approval stages. A shortage of qualified procurement professionals and a lack of timely information contribute to these delays.
Unfair Practices and Corruption
Despite procedural safeguards, corruption remains a significant issue in India, impacting the quality of public services and hindering development.
Presence of Anti-Competitive Elements
Anti-competitive practices by bidders, including collusive bidding, bid rigging, cartelisation, and abuse of dominance, disrupt the procurement process and undermine value for money.
Low Participation of Domestic MSMEs
Despite provisions for MSMEs, their participation in public procurement in India remains low. Entry barriers, including anti-competitive elements, and the perception of delayed contract payments by government-owned companies deter MSME involvement.
Competency and Skill of Procurement Officials
India lacks an independent grievance redressal mechanism within the procurement policy. Initial complaints against the misdeeds or irregularities of procuring company officials are adjudicated by the same entity responsible for causing grievances, raising questions about the impartiality of judgments.
Restrictions on Bidders from Bordering Countries
The Indian government imposed restrictions on public procurement policy by prohibiting bidders from countries that share a border with India. This move was based on defence and national security grounds and was introduced through amendments to the General Financial Rules in 2017.
Mandatory Country of Origin Disclosure
Also, the Central government mandated that sellers on the Government E-Marketplace Portal disclose the country of origin for their products when registering new items.
FDI Restrictions
The Indian government amended Foreign Direct Investment rules, requiring prior approval for investments by companies from countries that share land borders with India. These measures were implemented to safeguard national interests and security concerns.
Cause for Recent Revisions in Public Procurement Policy
As per official sources, the rationale behind modifying the Public Procurement Policy was to lessen the influx of Chinese products and investments into India, aligning with the objective of promoting self-reliance in India, known as “Atmanirbhar Bharat.”
Final Thoughts
The recent changes in India’s Public Procurement Policy for MSMEs signify a strategic shift toward strengthening self-reliance and reducing dependency on foreign products and investments, primarily from China. These changes are underpinned by national security concerns, economic resilience, and the overarching “Atmanirbhar Bharat” initiative, aimed at fostering self-sufficiency in key sectors.
By amending the policy, the government seeks to nurture indigenous industries, create a more favourable business environment for Indian enterprises, and reinforce its strategic and economic autonomy.
