Using Coronavirus crisis to affect permanent reforms in public procurement system

Published: April 15, 2020 4:30 AM

Since significant production is at a standstill, the state should harness industrial units to deliver emergency supplies and utilise stranded private sector human resources too where needed.

It is now clear that the new normal of economic growth will be far from what India experienced in the past two decades. (Representative image)It is now clear that the new normal of economic growth will be far from what India experienced in the past two decades. (Representative image)

By Vivan Sharan

Public procurement is a key lever available with the Indian state to overcome the economic fallout of the coronavirus crisis. Such procurement accounts for anywhere between 20-30% of India’s GDP annually. It is a lifeline for small businesses, as the state is often the primary buyer of their goods and services. The central government has already eased procurement norms for ministries like textiles and health in light of the crisis. They are now allowed to classify and buy “emergency supplies” at an accelerated pace, with post-facto financial approval. But, much more needs to be done. India must use this crisis to affect permanent reforms in its public procurement system to support and sustain economic recovery.

First, India can emphasise quality as much as cost in public procurement, with due concern to affordability. The procurement ecosystem is riddled with quality challenges. For instance, healthcare practitioners are complaining about the poor quality of personal protective equipment (PPE) in public hospitals for battling COVID-19. The general secretary of the Resident Doctor Association of the All India Institute of Medical Sciences, Delhi gave a statement saying that doctors have equipment that doesn’t “meet the worldwide safety standards”.

A useful benchmark for quality-orientation is the European Union’s (EU) 2014 directive on public procurement. The rules conceptualise a “price-quality ratio”, in a departure from the erstwhile focus on lowest price-the latter analogous to India’s current system. Public procurement contracts in the EU are awarded on acceptable trade-offs between price and quality, which authorities can gauge according to different contexts. For instance, quality of equipment can be given greater priority than the price in health emergencies, by adjusting the aforementioned ratio. And, this in no way translates into less state accountability. Rigorous quality criteria are considered, including technical merit, qualification and experience of staff assigned to the contract. India can adopt a similar framework and justify the focus on quality in the public interest.

Second, India should further its innovation agenda through public procurement. The long-term economic recovery from the coronavirus is contingent on innovation-driven productivity gains. However, it is rare for public procurement to be innovation-centric since there is no incentive for officials to deviate from the status quo. There are many stories of entrepreneurs innovating new products and services to battle the corona crisis. For instance, a portable, toaster-size ventilator designed by AgVa Healthcare, has shot to prominence for its cost-effective and nifty design. However, only a handful of such innovators are lucky enough to navigate the maze of public procurement.

The universalisation of the “swiss-challenge” method of procurement is a solution to this challenge. In this, bidders can make unsolicited proposals to the state. If they pass muster, the state can seek counter-proposals from other bidders, with the original bidder retaining rights of first refusal. This method has been used for new infrastructure works and is formally recognised in a handful of states, like Rajasthan, Gujarat and Maharashtra. It can be adapted for procurement of technology and healthcare goods like PPEs so that innovators need not jump hoops to serve the country. Similarly, the method can also be extended to the knowledge sector so that experts can design and implement novel solutions.

Third, India can introduce new legislation to smoothen and repurpose public procurement. The finance ministry’s General Financial Rules govern the procurement ecosystem. These are not backed by dedicated legislation. Consequently, a range of laws impact procurement. These include the Central Vigilance Commission Act and the Prevention of Corruption Act. Punitive measures under such rules engender bureaucratic inertia. The NDA government can break from the past and enact a new law that strikes a balance between process efficiency and state accountability.

The absence of directive legislation to repurpose manufacturing units for battling crises is also palpable. Since significant production is at a standstill, the state should harness industrial units to deliver emergency supplies and utilise stranded private sector human resources too where needed. The US enacted the Defence Production Act in 1950 in the aftermath of World War-II for this purpose. The legislation allows the American president to expand manufacturing capacities and even establish a voluntary reserve of private sector executives available for emergency deployment. The law goes much beyond the traditional realm of national defence, to areas such as recovery from natural hazards and other emergencies.

Twenty-first battles against disasters like pandemics and climate change will require enlightened responses. It is now clear that the new normal of economic growth will be far from what India experienced in the past two decades. The fallout of the coronavirus pandemic is painful, but it also provides the perfect opportunity to support the private sector—the engine of economic growth in India.

The author is Partner, Koan Advisory Group. Views are personal

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