In a move that could herald the opening up of India?s multi-billion dollar market of government procurement to foreign companies, the commerce ministry has proposed a process for the country to join the agreement on government procurement (GPA), a plurilateral treaty under the World Trade Organisation (WTO).

The ministry has moved a Cabinet note, which suggested that India should acquire an ?observer status? in the GPA to begin with, and consider formally acceding to the agreement as and when the climate is conducive. If the proposal is implemented, it would end the current policy bias for Indian companies, especially PSUs, and expose them to serious competition from abroad in getting large government-supply contracts, especially in areas like infrastructure, construction and energy.

Formal accession to GPA involves binding commitments on market access for public procurements above a threshold value. It implies equal treatment to Indian and foreign companies when it comes to the selection of bidders and award of contracts. Currently, there are 14 signatories to the GPA, including the US, European Union, Canada, Japan and Korea.

Simultaneously, the ministry is also doing risk-benefit analyses of India becoming a member of the GPA framework with respect to many countries, including the EU, Australia and Japan. The move marks a radical policy shift. India used to oppose even the relatively innocuous proposal to discuss transparency in government procurement as part of WTO?s Doha Round negotiations, let alone mull market access commitments in this area. At the fifth WTO ministerial conference held in Canc?n in September 2003, then commerce minister Arun Jaitely was seen taking a firm stance against globalisation of government procurement norms and its inclusion in the Doha development agenda (DDA). Government procurement, one of the ?Singapore Issues? is outside the ambit of the ongoing DDA negotiations but accession to the GPA is independent of that process.

The commerce ministry?s proposal could also have the beneficial effect of India?s government procurement mechanism becoming more transparent and auditable. Also, if the proposal is implemented, at least sections of Indian industry that have the ability to outbid their global peers on price and/or quality, would gain meaningful access to the highly competitive market for government contracts in the GPA signatory nations.

The government procurement market in these countries is valued at trillions of dollars at 10-15% of the GDP.

Official estimates put India?s central and state government purchases at $70-80 billion. Independent estimates that are not very meticulous but make assumptions based on national account estimates put the figure at around $200 billion.

Speaking to FE, a senior government official said that India no longer had a problem with the demand for transparency in government procurement.

?We have already achieved a fair degree of transparency. The Central Vigilance Commission (CVC) guidelines are being followed by central ministries and public sector undertakings. Also, the Directorate General of Supplies & Disposals (DGS&D) manual is globally compatible,? he said. Further, the Comptroller and Auditor General and central/state legislative committees make post-event assessment of the bidding process and award of contracts.

The official, who wished not to be quoted, added it was however doubtful whether India would really be in a position to take advantage of the market access that the accession to GPA would throw up. ?At least with respect of countries like Australia and Japan on which we have studies available, the indications are that we can?t be a net gainer.? He added that a bulk of the government procurement in the West is under healthcare and social security schemes where the market access is limited and marred by non-tariff barriers.

?With the observer status, India will be able to participate in the GPA discussions and work for its betterment so that the country can benefit from becoming a signatory,? the official said. ?The policy change is for us to be open-minded (on joining the agreement) and seriously engage with the GPA process,? he said. China, Turkey and Saudi Arabia are among countries that hold an observer status under GPA.

When asked about the ministry?s proposal on GPA, commerce secretary Rahul Khullar refused to disclose details, terming it ?as the proposal pending government decision.? He also clarified that, ?there is no proposal for India to right-away sign up the GPA at this stage.?

Corporate India is ambivalent on the idea of India joining the GPA. Except in certain sectors like automobiles and perhaps pharmaceuticals, where we have achieved truly world-class production standards, the domestic industry would still need to be empowered to meet the competition that would arise out of GPA membership. There could be a negative fallout of the move for the local companies in constriction, infrastructure and energy sectors such as Bhel and L&T.

?Unless we have a say in the norm-setting, we should be cautious,? said DG Shah, secretary-general, Indian Pharmaceutical Alliance. He outlined the experience of Indian drug industry being denied full-fledged membership of the International Conference on Harmonisation, an exclusive body of the US, EU and Japan on technical requirements of pharmaceuticals despite being a robust player in the generics space.

What has prompted the government move is obviously the improvement in government procurement procedures in recent years through autonomous policy action and India?s enhanced engagement in the global drive for transparent bidding norms. India is already a participant in the Organisation of Economic Co-operation and Development (OECD) anti-corruption action plan. It is also a signatory to the UN Convention against Corruption. There is also pressure from the US government for India to augment its public purchases from IT hardware majors like HP and Dell to reciprocate Indian software majors? access to the US market.