Time for a national e-procurement strategy

Written by YRK Reddy | Updated: Nov 11 2006, 05:30am hrs
Andhra Pradesh took to e-procurement a few years ago by involving the private sector for expertise and sharing the costs in a public-private partnership. It covered eight critical departments, 13 public sector units, 57 municipalities and a few autonomous bodies. According to the IT department of the government, it has reportedly transacted 13,600 tenders with a value of about Rs 34,000 crore in three years. The range of items procured includes drugs, pesticides, office stationery, hardware, software, transformers, office equipment and commodities. The values ranged from a mere Rs 56,000, for procuring drains for a municipality, to an irrigation contract worth Rs 2,365 crore.

The Andhra Pradesh government states that there have been discernible benefits apart from total transparency. They include avoiding cartels, physical threats and manipulation of documents, as well as widening the supplier network. According to an official presentation, direct savings through lower costs of procurement estimated in three yearsfrom 2003 to 2006is over Rs 2,000 crore. There were further gains from savings in advertisement costs and shortened lead-time to 36 days, from 90-180 days.

It is the stated vision of the Central government that all its departments as well as states will migrate to e-procurement by April 2007, but little progress has been made despite some early conceptualisation. The government launched the National e-Governance Plan (NeGP) in 2002. It is to cover 25 separate projects of which 10 are state focused, eight are Central government focused and a few are integrated ones in mission mode. While most are service delivery oriented, e-procurement also figures as a proposal.

The National Institute for Smart Government had also reportedly conceived a national strategy for e-procurement, which possibly remains an idea, though states like Orissa and Karnataka are reportedly adopting e-tendering. The Central Vigilance Commission had clarified and commended e-procurement for public sector enterprises, but just a few have taken to it. Even the private sector has not been implementing e-procurement enthusiastically.

Many countries have realised the power of e-procurement and e-commerce in achieving multiple benefits. For instance in the UK, e-procurement has been adopted as a proactive national strategy with involvement of even provincial and local bodies. It is the same with Portugal, which has a national e-procurement plan. Case studies show that the savings can be anywhere between 5% and 30% depending on the items.

E-procurement has a bearing on better governance and efficiencies for the government and competitiveness for the industry. If half of the corporations and government departments were to adopt e-procurement in two years time, one could expect immediate savings of about Rs 50,000 crore, apart from the several other benefits. It will also enable the industry to participate in e-commerce globally and compete in hitherto unknown markets. It is, indeed, the new way of a globalising economy.

The joint venture, Metaljunction, between SAIL and Tata Steel is a classic example worthy of mention. Metaljunction was created as a joint e-commerce initiative and has become an outstanding platform for online sales, e-auctions and e-tendering. It has even integrated financial solutions for those trading and, thus, has become a one-stop solution for procurement and sales transactions. This move has reportedly reduced the purchase and sales costs by hundreds of crores and increased the reach of the users globally. Since inception in 2001, it is estimated that material costs were reduced by 5-10% and transaction costs by 40-60%, apart from better information/data management, greater transparency and reduction in procurement cycle to about 20%.

It is time the government took up the long-standing intention as a priority mission with a wide remit to take up awareness and advocacy throughout India and build capacity to migrate to new technology and methods it can consider partnering with various networks such as industry bodies, employee collectives, academic institutions, governance institutes and solution providers to achieve its objective within two years. Otherwise, entrenched interests will continue to slow down the required reform in the government as well as public and private sectors.