{"id":1150,"date":"2022-02-11T10:35:13","date_gmt":"2022-02-11T05:05:13","guid":{"rendered":"https:\/\/www.samdesindia.in\/blog\/?p=1150"},"modified":"2022-02-11T10:35:14","modified_gmt":"2022-02-11T05:05:14","slug":"reforming-public-procurement-new-initiatives-in-budget-2022-23","status":"publish","type":"post","link":"https:\/\/www.samdesindia.in\/blog\/reforming-public-procurement-new-initiatives-in-budget-2022-23\/","title":{"rendered":"Reforming Public Procurement: New Initiatives in Budget 2022-23"},"content":{"rendered":"\n

Public Procurement or procurement of goods and services by Government \u00a0in India constitutes a large chunk. However, there are no definitive estimates of the total size of India’s public procurement. Some\u00a0 agencies have estimated the figure as 30 % and some others at\u00a0 20% of the GDP. \u00a0\u00a0India does not have a single public procurement law, and at the core of the procurement framework is\u00a0 the General Financial Rules (GFR<\/strong>), currently the GFR 2017. In addition, there are sector specific manuals and procedures. The underlying principle in all these procedures is accountability, transparency, fairness \u00a0and competitive prices. Therefore, there are inherent checks and balances in the process which contribute to \u00a0\u00a0complexities \u00a0in \u00a0public procurements. Another stumbling block is the high costs on guarantees and payment systems. The diverse agencies which procure goods and services range from autonomous bodies, PSUs, local bodies to Ministries\/ Departments. \u00a0So, it was heartening to note \u00a0that the \u00a0Finance Minister in her budget speech included Government Procurement as one of the areas\u00a0 proposed for \u2018Productivity Enhancement & Investment, Ease of Doing Business 2.0 & Ease of Living\u2019.<\/p>\n\n\n\n

Of the two \u00a0reform measures included, one related to an otherwise\u00a0 routine function namely payments, but which has been \u00a0a major irritant for most vendors because\u00a0 the manual process was opaque and prone to delays. Such delays particularly impacted the smaller companies which operated on tight cash flows. Therefore, the announcement by the Finance Minister that as a further step to enhance transparency and to reduce delays in payments, a completely paperless, end-to-end online e-Bill System will be launched for use by all central ministries for their procurements would certainly be welcomed by all vendors. The system will enable the suppliers and contractors to submit online their digitally signed bills and claims and track their status from anywhere.<\/p>\n\n\n\n

\u00a0\u00a0\u00a0 In the second reform to reduce indirect cost for suppliers and work-contractors, the use of surety bonds as a substitute for bank guarantee has been made acceptable in government procurements. IRDAI has given the framework for issue of surety bonds by insurance companies. According to GFR Bid Security (also known as Earnest Money) is to be obtained from the bidders as a safeguard against a bidder from altering or withdrawing the bid during bid validity,\u00a0 though Micro and Small Enterprises (MSEs) \u00a0are however exempt. The amount of bid security prescribed is in \u00a0range between 2 percent to 5 percent of the estimated value of the goods to be procured. In addition to \u00a0ensure due performance of the contract, Performance Security for an amount of 5 to 10 percent of the value of the contract \u00a0is to be obtained from the successful bidder awarded the contract. This amount was reduced to 3 percent due to requests from vendors.<\/p>\n\n\n\n

\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Following the budget announcement, the GFR has been\u00a0 amended on 2 February 2022 to include insurance surety bonds as security instrument. Earlier the instruments \u00a0were mainly from \u00a0the banking channel either an Account Payee Demand Draft, Fixed Deposit Receipt,\u00a0 Bank Guarantee, or online payment. Most vendors use the Bank Guarantee. However, the Bank Guarantees involved costs like margin money and bank commission charges which according to experts are in the range of \u00a0margin money \u00a0at\u00a0 10-25 percent and commission at 2-3 percent. However, in the case of surety bonds, a customer only needs to pay premium to the insurer. The downside, however, is that the surety bond is \u00a0\u00a0still a new concept and there are apprehensions that insurance companies in India do not have the level of \u00a0expertise in risk assessment, and issues like the recourse available against defaulting contractors, reinsurance options etc. Its early days yet to see how the opening up of guarantees to the insurance sector will bring down the costs for the vendors especially small and medium companies. The competition may also spur the banks to cut down\u00a0 costs as well.<\/p>\n","protected":false},"excerpt":{"rendered":"

Public Procurement or procurement of goods and services by Government  in India constitutes a large chunk. However, there are no […]<\/p>\n","protected":false},"author":4,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[46],"tags":[524,518,523,525,521,104,522],"yoast_head":"\nReforming Public Procurement: New Initiatives in Budget 2022-23 | SAMDES INDIA'S BLOG<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.samdesindia.in\/blog\/reforming-public-procurement-new-initiatives-in-budget-2022-23\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Reforming Public Procurement: New Initiatives in Budget 2022-23 | SAMDES INDIA'S BLOG\" \/>\n<meta property=\"og:description\" content=\"Public Procurement or procurement of goods and services by Government  in India constitutes a large chunk. 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