Context: Recently, Government of India amended the General Financial Rules 2017 to enable imposition of restrictions on bidders from countries which share a land border with India on grounds of defence of India, or matters directly or indirectly related thereto including national security. The Department of Expenditure has, under the said Rules, issued a detailed Order on public procurement to strengthen the defence of India and national security. As per the Order any bidder from such countries sharing a land border with India will be eligible to bid in any procurement whether of goods, services or works only if the bidder is registered with the Competent Authority. 
Key Points

• This was done by amending the General Financial Rules 2017.
• Earlier the Central government has made it mandatory for sellers on the Government e-Marketplace (GeM) portal to clarify the country of origin of goods when registering new products.
• The government also amended Foreign Direct Investment (FDI) rules mandating prior approval for investment by entities in countries that share land borders with India.

Reason

• According to experts, this decision has been taken to prevent the influx of Chinese products and investments into India, following the clashes between Indian and Chinese troops in Galwan Valley.
• To push for Atmanirbhar Bharat (self-reliant India).

New Order

• Bidders from these countries will be eligible only if they are registered with the Registration Committee (Competent Authority) constituted by the Department for Promotion of Industry and Internal Trade (DPIIT).
• For national security reasons, the Registration Committee shall not be required to give reasons for rejection/cancellation of registration of a bidder.
• Bidders will also be required to take mandatory political and security clearance from the ministries of External Affairs and Home respectively.
• The order will be applicable for public sector banks and financial institutions, Autonomous Bodies, Central Public Sector Enterprises (CPSEs) and Public Private Partnership projects receiving financial support from the Government or its undertakings.
• The order will not apply to procurement by the private sector.

Order Mandatory for State Governments

• The Central government has invoked the provisions of Article 257(1) of the Constitution, directing the state governments to implement this order for all public procurement.
• For State government procurement, the Competent Authority will be constituted by the states but political and security clearance from Central government ministries will remain necessary.

Relaxations

• Relaxation will be provided for procurement of Covid-19 medical supplies till 31st December 2020.
• The order for prior registration will not apply for countries to which India extends lines of credit or provides development assistance, even if they share a land border with India.
• India shares its border with China, Nepal, Bhutan, Pakistan, Bangladesh, Afghanistan and Myanmar.
• As per official data, out of these, the government has extended lines of credit to Bangladesh, Nepal, Myanmar.
• India also provides various developmental assistance to Bhutan and Afghanistan.

What is Public Procurement?

• In an ideal world, Public Procurement can be defined as acquisition of goods or services at the best possible cost, in the right quality and quantity, at the right time, in the right place and from the right source, for the ultimate benefit of the people at large.
• Of course, the world we live in is far from ideal and public procurement is also plagued by practical problems.

Procurement Policy

• Government has approved a national procurement policy that gives preference to ‘Make In India’ in government procurements. The policy aims to maintain the balance between promoting ‘Make in India’ and ensuring timely, quality and value-for-money products for the procuring government entities.

Why was it needed?

• It will boost domestic manufacturing and service provision 
• It will enhance income and employment.
• It will facilitate flow of capital and technology into domestic manufacturing and services.

Process

• Preference will be given to local content in government procurements
• Local content essentially means domestic value addition
• Local suppliers are those whose goods or services meet minimum thresholds (50%) for local content.
• For the procurement of goods below Rs 50 lakhs, only local suppliers will be eligible if the Nodal Ministry determines that there is a availability of sufficient local capacity and local competition.
• For procurements valued above Rs 50 lakhs or in case of insufficient local capacity and if the lowest bid happens to be from a non local supplier, then the lowest-cost local supplier who is within a margin of 20% of the lowest bid, will be offered an opportunity to match the lowest bid. 
• If the order can be split into more than one supplier, the order will be split between the non-local supplier and the local supplier.
• Small procurements valued below Rs 5 lakhs are exempted from the policy.
• The order also covers autonomous bodies and all the government entities under the control of the government.  

Importance of Public Procurement

• Public procurement has a significant impact on our everyday lives as it plays a key role in the creation of both social and economic infrastructures like roads, schools, hospitals, provisions for drinking water and sanitation etc.
• Studies have shown that sectors like railways, defense, health, and telecommunication have allocated significant portions of their budgets to public procurement.

Benefits of Public Procurement

• There are many benefits of a well-designed and well-implemented public procurement policy.
• These include fiscal savings from annual procurement expenditure.
• Generating much needed fiscal space; and enhanced flexibility to channel government.
• Expenditure into growth-enhancing areas is of great advantage.
• It could also help in a shift towards rule-based institutional procurement.
• India’s crude estimate of potential savings generated by the revised Bill ranges between 0.6 per cent and 1.2 per cent of GDP, depending on the extent of efficiency achieved.
• The savings would be greater if the States, whose expenditure equals that of the Union government, and all the public enterprises, also initiated similar procurement reforms. This task could be entrusted to NITI Aayog.

What are the issues in the Public Procurement System in India?

• The absence of a comprehensive procurement Act: It has resulted in heterogeneous procedures and multiplicity of rules across the procuring entities.  Many times, undertaking comprehensive actions against the stakeholders involved in unfair practices become challenging in the absence of a strong legislation
• Lack of standard bid documents: In spite of the initiatives for standardizing the bid documents and code of contract following the international agencies such as IMF and the World Bank, there continues to be a multiplicity of bid documents across the entities in terms of addition/rephrase/repetition of clauses/provisions. Such ambiguities and contradictions in the bid documents stand against the principles of standardization, transparency, and accountability.
• Delays in activities in procurement cycle: The procurement process is often delayed in the stage of need assessment, budget preparation, and approval. Similarly, unavailability of sufficient procurement professionals and non-realization of the required information usually appear responsible for the delay in preparing the technical specifications.
• Unfair practices and corruption: Despite the procedural safeguards, corruption level in India is perceived to be high in recent years leading to low quality of public services which ultimately hampers the development process.
• Presence of anti-competitive elements: The existence of anti-competitive practices by the bidders’ community tends to hamper the procurement process by negating the best value of money. Competition issues in India mainly concern with collusive bidding, bid rigging, cartelization, and abuse of dominance.
• Low participation of the domestic MSEs: Despite the MSEs provisions, the participation of domestic MSEs in the public procurement activities remains low in India. Apart from resource related entry barriers including anti-competitive elements, many MSEs do not also take part in public procurement due to a perception that government procuring entities often delay in releasing the contract payments.

Road Ahead

• Bidding regulations order should not be seen as move in isolation, it is part of string of measure the govt. is taken in recent past, considering the present condition and also there is no binding order on private entities, it does not keep out anyone; just said to all guidelines and protocols. This is not something unique to India, countries around the world are doing it as like the global protocol suggested.