Opinion

Trade and govt procurement

G. Srinivasan | Updated on November 12, 2017

Only two States — Karnataka and Tamil Nadu - have a law on government procurement.

India should have its procurement legislation in place, before its interests attract undesirable global attention.

If the embers of the raging corruption issue in India are kept smouldering some more time, a lot of good will happen, particularly more so in the realm of managing the economy and utilising scarce capital efficiently for the common weal.

One such area that deserves drastic policy action is government procurement, both at the Central and State level, which accounts for 15-20 per cent of our national economy.

Although the country went for a mixed economy pattern immediately after Independence and adopted economic reforms in the 1990s to give more latitude to market forces , the role of Government and its public procurement both at the national and sub-national level continues undiminished.

As the major purchaser of goods and services across varied areas of the economy, it is rather disconcerting that the Central government has only lately woken up to design a central procurement policy.

At the sub-national level, only two States — Karnataka and Tamil Nadu - have a law on government procurement.

As exporter of goods and services in which the latter's contribution is on the rise in recent years, thanks to the spectacular growth of IT industry and IT-enabled services and outsourcing, India's merchandise and services sectors are growing at a high speed.

GPA observer status

India needs to put in place plausibly sound government procurement legislation before its offensive and defensive interests in the issue get international attention, especially on transparency as well as market access aspects on government procurement.

India has joined the WTO's Government Procurement Agreement (GPA) last year as an observer, prior to membership in the scheme that operates after the fashion of a pluri-lateral pact involving only signatories.

The GPA, which 41 of the WTO's 153 members have signed up to, mostly advanced economies, regulates trade in goods and services bought by governments. India is one among the 27 countries with observer status in the GPA.

Even as India has been reluctant in joining the GPA unsure of how such trading practices on government procurement would pan out in the end, a just published study by the National Bureau of Economic Research (NBER) titled The WTO Government Procurement Agreement and its Impact on trade ( Hejing Chen and John Whalley 17365 - ITI)) attempts to dispel any such blues over opening up government procurement among members.

It is premised on the fact that discriminatory government procurement practices were a notable non-tariff barrier (NTB) and impeded the growth of international trade.

The study assesses the implications and impact of the WTO GPA on trade in both goods and services among members using a gravity model applied to a panel dataset encompassing 20 rich countries over the span 1996-2008 for trade in goods and 1999-2008 for trade in services. In analysing the product composition of the government procurement market under GPA, it has included construction services in the services categories.

Within the two major services, services account for a lion's share with 60-65 per cent of government procurement above the threshold.

This is the case for the 27- member European Union (EU), US and Japan.

It is small wonder that in the free trade association EU is hammering out with India, the former has sought a separate chapter for inclusion with New Delhi on government procurement even to the limited extent of sharing information to start with!

infringement

The NBER study states that under GPA Article III, the principles of non-discrimination apply to both foreign affiliates and ownership, which meant that foreign suppliers could compete against domestic suppliers and meet procurement bids either through cross-border supply or foreign affiliation sales.

Based on the notification of GPA parties, the study found that government procurement markets seem far from globally integrated in the case of Japan, as is borne out by the composition of Japan's government procurement on goods and services which highlighted the relative shares of Japan's government procurement above threshold for goods and services by domestic suppliers and foreign suppliers.

It said even compared with the lower share of procurement for goods by non-Japan suppliers, the situation of market access is even lower in the services sector This suggests a strong home bias in government procurement markets in Japan.

This apart, US President Mr Barack Obama's controversial “Buy American” provisions in a stimulus package early last year prevented many countries from bidding for public contracts under the programme!

Positive impact

Despite these two instances of flagrant infringement by members of the GPA, the study's results suggests that GPA membership has a positive impact on trade in both goods and services between parties as well as on outward foreign affiliate service sales.

The number of GPA parties has a small marginal negative effect on trade in goods.

Service exports also increase slightly with more parties participating in the GPA, it said adding that the growth of government procurement contracts above the threshold under the GPA also fosters service imports, exports and outward foreign affiliate sales.

With India emerging increasingly as an economy driven by services sector, perhaps it would do well to weigh the implications of this monograph so that its ingrained misgivings on cleaning up the mess in its government procurement policy, both goods and services, could be overcome, trade policy analysts say.

Published on September 12, 2011

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