The Government maintains minimum support prices (MSPs) for major agricultural commodities.294 The MSPs and products subject to MSPs are reviewed annually. MSPs are announced prior to each planting season. India maintaines MSPs for 25 major agricultural commodities: paddy, jowar, bajra, maize, ragi, arhar (tur), moong, urad, cotton, groundnut in shell, sunflower seed, soybean, sesamum, niger seed, wheat, barley, gram, masur (lentils), rapeseed/mustard, safflower, toria, copra, de‑husked coconut, jute, and tobacco.295 MSPs are fixed by the Government following the recommendations of the Commission for Agricultural Costs and Prices (CACP), which takes into account several factors.296 MSPs are the same throughout the country even though the cost of production varies according to region.
The Price Support Scheme (PSS) is a procurement system to ensure that farmers of specific commodities (e.g. cereals, pulses and oilseeds, cotton and jute) can sell their produce at the MSP; designated agencies purchase the produce from farmers at the MSP.297
The Market Intervention Scheme (MIS), in place since 2001, covers agricultural commodities that are not covered by MSPs. The Department of Agriculture and Cooperation implements the MIS at the request of state/union territory (UT) governments to protect farmers from a price decline when there are bumper crops. In these instances, a market intervention price (MIP) is fixed. The MIP is set taking into account of the cost of production and a "small" margin to support farmers. The National Agricultural Cooperative Marketing Federation of India Ltd. (NAFED) and other state‑designated agencies purchase at this fixed prices and distribute the products. The authorities noted that the MIS is not used frequently.
Under the Targeted Public Distribution System (TPDS), a programme that focuses on reducing poverty, the price of some essential commodities, i.e. wheat, rice, coarse grains, sugar and kerosene, are subsidized for a targeted population living below the poverty line. These products are distributed by the state governments/UTs through the fair price shops and kerosene oil depots. According to the authorities, the price for rice and wheat has not been revised since 2002.298
In 2009, the statutory minimum price (SMP) for sugarcane was replaced by the fair and remunerative price (FRP).299 The FRP is fixed by the Central Government on the basis of the recommendations of the Commission for Agricultural Costs and Prices (CACP), which consults with the state government and sugar associations. The main difference between the SMP and the FRP is that an additional factor (i.e. a "reasonable" profit margin for sugarcane producers taking into account risk) is taken into account when setting the FRP. The FRP is a minimum price, below which no sugar mill may purchase sugarcane from a farmer.300 State governments also set a state advisory price (SAP) for sugarcane. If the SAP is higher than the FRP set at the central level, the state governments have to bear the loss.301
Traditionally, India operated an administered pricing mechanism (APM) for petroleum products, based on the "retention price" concept, under which oil refineries, oil marketing companies, and pipelines were compensated for operating costs and assured a 12% post‑tax return on net worth.302Under the APM system, the fixed level of profitability was ensured subject to oil companies achieving specified capacity utilization targets. Upstream companies, i.e. the Oil and Natural Gas Corporation Ltd. (ONGC), Oil India Ltd., and GAIL (India) Ltd., also operate under the retention price concept and are assured a fixed return.303 The APM mechanism was, in principle, dismantled in 2002 with the objective of introducing market‑determined prices for all petroleum products, except for kerosene under the public distribution system (PDS) and liquefied petroleum gas for domestic use (domestic LPG). Domestic retail prices of petrol and diesel were revised in 2003, but not since then. Although the APM was in principle dismantled in 2002, India did not actually end state control over petrol prices at the refinery and retail level until 26 June 2010, and allow them to vary according to international prices.304 For kerosene and LPG, the PDS Kerosene and Domestic LPG Subsidy Scheme 2002305 and the Freight Subsidy (For Far‑flung Areas) Scheme 2002 were put in place after the APM was dismantled.306 These schemes, which were to be phased out by 2008, have been extended until 31 March 2014.307 The retail price of diesel is still under control and set according to "trade parity".308
At present, a two‑price regime system is in place for natural gas: gas priced under the APM and non‑APM gas.309 The APM applies to gas produced in fields awarded to India's national oil companies (ONGL and OIL) prior to the implementation of the New Exploration Licensing Policy (NELP) in 1999. The non‑APM applies to: (i) gas produced in field awarded under the NELP for which the price is determined by the production sharing contract (PSC) between the Government and the private contractor; and (ii) to imports of liquefied natural gas (LNG) for which the price is determined by an agreement between buyer and seller. The price formula used to determine the prices under the PSC must be approved by the Government. APM gas may only be used by priority sectors, i.e. fertilizers (urea), LPG plants (owned by GAIL and ONGC), power, city gas distribution, steel plants, refineries, and petrochemicals. Other consumers are not allowed to use subsidized gas and must buy it from private companies or LNG importers. The price of gas produced by ONGC and OIL under the APM was increased as from June 2010 to US$4.2/mmbtu (less royalty), to bring it on par with non‑APM gas (i.e. gas produced by NELP operators).
The Government closely monitors the price of certain hydrocarbons. In case of high price volatility in the international market, the Government will intervene to stabilize prices.310
The New Pricing Scheme (NPS) for urea, in place since 2003, was initially expected to be phased out by 31 March 2010 but it has been extended indefinitely.311 Thus, the price of urea for agricultural use continues to be controlled. However, price controls on other fertilizers (e.g. phosphatic and potasiac fertilizers) were eliminated in 2010 and replaced by a "nutrient‑based subsidy (NBS) policy", implemented as of 1 April 2010, which applies to phosphatic and potassic fertilizers including imports.312 At present, manufacturers/importers fix the retail price and the Government provides a fixed annual subsidy based on the nutrient content of the fertilizer produced. The subsidy granted to central public sector enterprises (CPSEs) and to private firms producing fertilizers is equivalent.
The Drugs Price Control Order (DPCO) 1995 allows for the price of drugs to be controlled, with the stated purpose of ensuring that quality drugs are available at "reasonable prices". At present, the price of 74 bulk drugs and related formulations are controlled. The Department of Pharmaceuticals (DoP) administers the DPCO. The National Pharmaceutical Pricing Authority (NPPA), an independent office attached to the DoP, fixes and revises the price of controlled bulk drugs and formulations from time to time. It also monitors the price of decontrolled drugs in order to keep them at a reasonable level. If within one year there is an increase in price beyond 10%, the NPPA will ask for the price to be reduced. The price of drugs for "popular use" is controlled when drugs are produced under a "monopolistic" situation (i.e. a single formulator has at least 90% of the market shares) and a turnover of at least Rs 10 million. For other drugs, the price may be controlled if formulators have a turnover of at least Rs 40 million.313 The price for bulk scheduled formulations is fixed according to the cost of production plus "maximum allowable post‑manufacturing expenses" (MAPE).314 The MAPE must not exceed 100% of the cost of production for national products, and 50% of the landed cost for imports. In respect of imported formulations for which equivalent domestic substitutes are available, a 35% margin is allowed by the NPPA. Ceiling prices are also fixed for commonly marketed formulations. The ceiling price for commonly marketed standard pack size of price controlled formulations is obligatory for all producers, including small‑scale units.315 The price for bulk "non‑scheduled" formulations may be fixed on grounds of "public interest" and monitored.316
A new pharma policy was drafted in 2006 but still under consideration.
India became an observer to the WTO Agreement on Government Procurement in February 2010. According to the authorities, reforms to date have moved India towards a more transparent and competitive procurement framework. India's procurement system continues to be decentralized, comprising an array of entities at various levels of Government (central, state, and local) in addition to numerous central public sector enterprises (CPSEs). There is no central agency responsible for framing policies or regulating public procurement at a national level and no common legislation governing procurement at different levels of government and by CPSEs. Consolidated data are not available on the economic significance of government procurement, including a breakdown of the value of contracts by tendering method.
The authorities consider public procurement as an important instrument of government policy used to obtain certain socio‑economic objectives such as developing indigenous industries and micro, small, and medium‑scale industries, uplifting disadvantaged sections of society, developing rural and under developed regions, and creating jobs. As a result, the Central Government has set reservations and price preferences as part of the procurement system.318 However, competition from foreign suppliers is ordinarily allowed in tenders advertised in India. If procurement is restricted to domestic manufacturers/suppliers, it is clearly indicated in the tender notification.
Certain control and oversight functions are carried out by central authorities, such as the Comptroller and Auditor General and the Central Vigilance Commission. Procurement decisions at the central level are still subject to audit by the Comptroller, and to legislative review and judicial scrutiny. There is a similar system at the state level. The public procurement carried out at state level is also subject to audit and oversight by the respective state vigilance departments, auditors, and judiciary. Some states (Tamil Nadu and Karnataka) have also passed laws to regulate public procurement.
Disputes regarding procurement should be resolved in the first instance through consultation. If the parties fail to resolve the dispute within 21 days, either party may give notice to the other of its intention to commence arbitration. For contracts with domestic suppliers, the applicable arbitration procedure is under the Indian Arbitration and Conciliation Act 1996. If the contract is with a foreign supplier, the supplier may chose arbitration either through the Indian Arbitration and Conciliation Act 1996 or the United Nations Commission on International Trade Law (UNCITRAL).319 Remedies regarding public procurement contracts may also be sought under the provisions of the Indian Contract Act 1872, the Specific Relief Act 1963, and the Sale of Goods Act 1930. A public procurement process may be subject to judicial review before a High Court in India on grounds of, inter alia, arbitrariness, fairness in action, bad faith or violation of a fundamental or legal right enshrined in the Constitution of India.320
Under India's competition law, collusive bidding or bid rigging is one of the horizontal agreements that is considered to have an adverse effect on competition. The Competition Commission of India (CCI) has the competence to determine whether collusive bidding or bid rigging is anti‑competitive. However, the CCI only makes an enquiry if there are complaints of an alleged contravention. After the enquiry the CCI might direct the parties to review the agreement and may impose a penalty if it deems necessary (section (iii) above).
India does not have a unified piece of legislation regulating government procurement. The regulatory framework for public procurement includes rules, directives, and government orders. At the central procurement level, comprehensive rules and directives have been put in place: (i) the General Financial Rules (GFRs), 2005; (ii) the Delegation of Financial Powers Rules (DFPR); (iii) the Manual on Policies and Procedures for Purchase of Goods issued by the Ministry of Finance; (iv) government orders regarding price or purchase preference or other facilities to sellers in the handloom sector, cottage and small scale industries and to CPSEs; and (v) the guidelines issued by the Central Vigilance Commission to increase transparency and objectivity in public procurement. There are also sectoral laws such as the Telecom Regulatory Authority Act 2000, the Electricity Act 2003, and the Petroleum and Natural Gas Board Act 2006, which also regulate public procurement. In addition, various government instruments and agencies including ministries and departments (e.g. the Public Works Department and the National Highways Authority of India) have their own public procurement system.321
The General Financial Rules (GFRs) 2005, issued by the Ministry of Finance, lay down the principles for financial management, and the broad rules and procedures for the procurement of goods and services and for contract management (Chapters 6 and 8). The GFRs and the Manual of Purchase Policies and Procedure, also issued by the Ministry, set the guidelines for procurement of goods and services at the central level.322 The rules and procedures framed by individual departments are based on their perceptions and interpretations of the GFRs and the manual, both of which provide only broad guidelines. In addition, the GFRs and the manual are guidelines with no legal standing and therefore are not enforceable as law.323
The various ministries or departments have full powers to make their own arrangements for the procurement of goods. However, if they do not have the required expertise to procure goods, procurement may be done through the Directorate General of Supplies and Disposal (DGS&D), the central purchase organization, with the approval of the competent authority.324 The DGS&D keeps a registry of manufacturers/suppliers and Indian agents of foreign manufacturers, and arranges the clearance of imported goods purchased by central government departments.
The procurement selection and qualification criteria must be stated in the bidding documents. Selection of the winning bidder follows the principle of value for money. Only the winning bidder is informed of the result of the bid evaluation. The reasons for selecting bidders are recorded but not disclosed. Post‑tender negotiations are forbidden but the GFRs allow two exceptions: post‑tender negotiations may be conducted with the bidder offering the lowest price, and for ad hoc purchases in exceptional circumstances (i.e. there is only one supplier).
The applicable procurement method depends on the value of the contract to be awarded and other factors (e.g. emergency situations) as stipulated in the GFRs 2005. The splitting of purchases into contracts of smaller value is explicitly forbidden. The procurement methods are: invitation to tender; limited tender enquiry; single tender enquiry; purchase of goods by purchase committee; purchase of goods without quotation; and purchase of goods directly under rate contract (Table III.27).
Government procurement methods, 2011
Invitation to tender by advertisement
For procurement of goods of a value of at least Rs 2.5 million, an advertisement must be posted in the Indian Trade Journal, in one national daily newspaper of wide circulation, and on the website of the tendering organization. The tendering organization should also post the complete bidding documents online. It may issue a global tender enquiry when goods are not available in India and it is necessary to seek suitable offers from abroad; it sends tender notices to Indian embassies abroad and foreign embassies in India, depending on the availability of the goods in the specific countries. Ordinarily, a minimum of three weeks from publication of the tender notice or availability of the bidding documents is allowed for submitting bids, whichever is later. Late bids are not considered.
Limited tender enquiry
For procurement of goods of less than Rs 2.5 million, bidding documents should be sent by speed post/registered post/courier/e‑mail to registered suppliers. A direct request from at least three suppliers is required. Goods of a value of over Rs 2.5 million may be procured through limited tender enquiry when the purchase is urgent and there are adequate reasons (i.e. public interest) and justifications (e.g. the sources of supply are definitely known).a These grounds are not defined in the Rules but must be documented in writing by the procuring entity.
Single tender enquiry
Goods may be procured from a single source when: (i) only a particular firm manufactures the goods; (ii) the goods need to be purchased from a particular source in case of emergency; and (iii) for standardization of machinery or spare parts to be compatible with the existing equipment.
Purchase of goods by purchase committee
Goods of a value ranging Rs 15,000‑Rs 100,000 may be purchased on the recommendations of a local purchase committee consisting of three members of an appropriate level, as decided by the head of the department. The committee surveys the market to ascertain a reasonable rate, quality and specifications, and identifies the appropriate supplier.b It must certify that purchased goods are of the required specification and quality, priced at the prevailing market ratec, and that the supplier recommended is reliable and competent to supply the goods (General Financial Rules 2005, Rule 146).
Purchase of goods without quotation
Goods up to a value of Rs. 15,000 may be purchased without inviting quotations or bids on the basis of a certificate to be recorded by the competent authority indicating the satisfaction with the good purchased in terms of quality, specification, and price (General Financial Rules 2005, Rule 145). The formal procedure of calling for quotations through a tender enquiry is not used.
Purchase of goods directly under rate contract
Ministries or departments may procure goods through the DGS&D under "rate contract" from suppliers, the prices to be paid for such goods cannot exceed those stipulated in the rate contract, and the other terms and conditions of the purchase should be in line with those specified in the rate contract.
a Information provided by the authorities.
b An appropriate supplier is determined by using the certificates recorded by the members of the purchase committee wherein they must certify that the supplier is reliable and competent.
c The prevailing market is identified by the Committee through a market survey.
Source: General Financial Rules 2005; and information provided by the Indian authorities.
The DGS&D concludes "rate contracts" for goods identified as "common use items" and needed on a recurring basis by various central government ministries or departments. The ministries or departments must follow those rate contracts to the maximum extent possible. A rate contract is an agreement between the purchaser and supplier to supply stores (i.e. goods) at specified prices during the period covered by the contract. However, no quantities or minimum purchase requirements are mentioned in the contract. Supply orders may be placed with any of the firms holding a "rate contract" directly by the authorized officers of the central government ministries/departments or by the DGS&D.
"Rate contracts" are concluded by inviting bids from suppliers, including foreign suppliers and their Indian agents, registered with the DGS&D, the National Small Industries Corporation (NSIC), and the Ministry of Defence. Eligible bidders are chosen considering: (i) the capacity of the tendering firm; (ii) the quantity that the tendering company commits to supply at the prices stipulated in the "rate contract"; (iii) the estimated amount required; and (iv) a reasonable price range. According to the DGS&D Annual Report, buying through rate contract facilitates procurement of quality goods from reliable sources at the most reasonable prices without each department having to initiate tenders separately every time a demand arises.325
The DGS&D prepares lists of eligible and capable suppliers of commonly purchased goods. The NSIC also registers micro and small industries (MSEs), under the single point registration scheme; this is considered equivalent to DGS&D registration. MSEs registered under the scheme are exempt from payment of fees related to the issue of the tender and of earnest money and security deposit; and benefit from the preferences reserved for MSEs (see below). Registration is granted for a fixed period depending on the nature of the goods, and may be renewed upon application.
Preferential policies at the central government level
India retains preferential treatment for micro and small enterprises (MSEs). At the time of the last Review of India in 2007, central public sector enterprises (CPSEs) were allowed to submit fresh bids in response to private sector bids. For tenders valued between Rs 50 million and Rs 1 billion, a CPSE whose bid was within 10% of that of a large private unit was allowed to revise its price downward and was eligible for a contract. This system was extended until 31 March 2008 and then discontinued.326 However, preferences could be granted on a case‑by‑case basis after an assessment of the ministry concerned; the margins should be CPSE‑specific, as required.327
Reservations still exist for MSEs and for certain products. MSEs receive purchase and price preferences in procurement by central government ministries/departments and CPSEs. Under the purchase‑preference system, 358 items have been reserved for exclusive procurement from MSEs (Table AIII.9) and 21 items for exclusive manufacturing in the micro and small sectors (section (4)(i)(b)). The purchase‑preference system offers price preferences of up to 15% to MSEs over the quotations provided by large‑scale industries. MSEs are also assisted through the: (i) issue of tender sets free of cost; (ii) exemption from payment of "earnest money" (deposits); and (iii) waiver of security deposits up to the monetary limit for which the unit is eligible, based on certain "transparent" criteria (Table AIII.9). The NSIC serves as a single point of negotiation for eligible MSEs for government purchasing preference schemes.
The Central Government has reserved all items of handspun and hand‑woven textiles (khadi goods) for exclusive purchase from the Khadi and Village Industries Commission (KVIC). The Central Government purchases all items of handloom textiles exclusively from the KVIC and/or the Association of Corporations and Apex Societies of Handloom, and coir products from the Coir Board.
In 2007, India issued a five‑year policy indicating that the Central Government would exclusively purchase certain medicines manufactured by pharma CPSEs and their subsidiaries. This policy is aimed at increasing the market share of the CPSEs and their subsidiaries.328 The reservation applies to a maximum of 102 medicines notified by the Department of Chemicals and Petrochemicals from time‑to‑time.329 The purchasing departments, CPSEs, and autonomous bodies may invite limited tenders from pharma CPSEs and their subsidiaries or purchase directly from them at the National Pharmaceutical Pricing Authority certified or notified price with a discount of up to 35%. However, if no pharma CPSEs can supply these medicines, the purchasing departments may purchase from other manufacturers. Pharma CPSEs and their subsidiaries must comply with the good manufacturing practices (GMP) norms stipulated in the Drugs and Cosmetic Rules.330
In addition, certain items purchased by the Central Government must have the mandatory Bureau of Indian Standards (BIS) ISI Marking, and the mandatory Bureau of Energy Efficiency (BEE) label star rating.331
Price variation clauses may be included in contracts where: (i) major raw materials (e.g steel or aluminium) constitute the main component of the cost; (ii) the price of the raw material is available from CPSEs such as the Steel Authority of India (SAIL) or the National Aluminium Company Ltd. (NALCO); (iii) there have been "substantial" price fluctuations of basic raw materials; and (iv) a specific time limit applies for manufacturing/processing of the product (e.g. 30 days). In these cases, bids must clearly define a price variation clause with a base price applicable on a specific date. The base price for calculating the variation is the price offered by CPSEs such as SAIL or NALCO.
Procurement of services
Ministries or departments may hire external professionals, consultancy firms or consultants for a specific job and time frame or outsource certain services when no one in the ministry/department has the required expertise to undertake the task (Rules 163‑164). Approval of the competent authority must be obtained before engaging consultants. Certain services (i.e. any service required for the functioning of a government office) may also be outsourced in the interest of the economy and efficiency (Rule 178).
The procuring agency, to outsource services, must prepare a tender enquiry containing, inter alia:(i) the details of the work or service to be performed by the contractor; (ii) the facilities and inputs to be provided to the contractor by the ministry or department; (iii) the eligibility and qualification criteria to be met by the contractor; and (iv) the statutory and contractual obligations to be complied with by the contractor (Rule 180).
When outsourcing services, a limited tender enquiry is used if the estimated value of the work or service is Rs 1 million or less (Table III.27). Eligible bidders are in the ministry/department's list of potential contractors. This list is prepared through formal or informal enquiries with other ministries and organizations involved in similar activities and research in trade journals. At least three contractors must be identified for issuing a limited tender enquiry. If the estimated value of the work or service is more than Rs 1 million, an advertised tender enquiry must be published in at least one popular largely circulated national newspaper and on the Ministry/department's website (Rule 181).
The DGS&D is mandated to computerize public purchases. A project on e‑government procurement under the National e‑Governance Plan (NeGP), initiated in 2004, has been in use since 2006.332 This reflects the Government's determination to implement electronic tools to ensure transparent and competitive procurement processes across all government entities. According to the authorities, e‑tendering has facilitated the participation of bidders, increased competition and diminished the incentive to create cartels.
Procurement at the state level
Some states (like Tamil Nadu and Karnataka) have enacted a law exclusively governing public procurement of goods. However, in most states the general financial rules (GFRs) govern procurement and are based on the Central Government GFRs, which were updated in 2005.
Procurement in the railway and other specialized sectors
Procurement in the railway, postal system, telegraph, and defence industries is subject to specialized procedures developed by the ministries responsible, within the overall framework of the GFRs 2005. In general, competition from foreign suppliers is allowed in respect of high technology or high value items. For procurement in railways, foreign firms are free to participate in tenders advertised in India only, but payment against such contracts must be received in Indian rupees at par with indigenous suppliers. Global tendering is frequently used in procurement of rolling stock, wheels, machinery and plant equipment, including technology transfer. Indian Railways evaluates all offers based on the total destination cost. Domestic goods bids are evaluated based on freight up to destination including all taxes and levies. Offers from abroad are evaluated based on the c.i.f. value of imports and customs duties, but inland freight is not taken into account. According to the authorities, railway procurement has become more transparent and efficient since the implementation of the e‑procurement system in 2006.
Procurement by the Ministry of Defence is regulated by the Defence Procurement Procedure (Capital Procurement) 2011 (DPP‑2011) and the Defence Procurement Manual (DPM) (Revenue Procurement) 2009, as amended. The DPP‑2011 covers all "capital acquisitions" (except medical equipment), purchased by the Ministry of Defence, the Defence Services, and the Indian Coast Guard, both in India and abroad. The procurement of capital goods is subject to minimum investment and domestic‑content requirements depending upon the procurement method (Table III.28). India's defence "offsets" programme requires companies to invest at least 30% of the value of contracts above Rs 3 billion in value in Indian‑produced parts, equipment, or services. Offset obligations must be discharged according to the methods outlined in the DPP with reference to "eligible" products and/or services provided by Indian industries (i.e. defence public sector enterprises, the Ordnance Factory Board or a private Indian industry).333 The DPM 2009 contains principles and procedures relating to procurement of goods and services for the defence services, organizations, and establishments.334 The 2009 manual introduced a system of offsets to require foreigners involved in large projects to invest in Indian companies to attain self-reliance.335
Capital defence procurement, 2011
Purchase of equipment
Must have minimum 30% of indigenous content
Foreign as well as Indian vendors
"Buy and Make"
Purchase from a foreign vendor followed by licensed production/indigenous manufacture in the country. Offset of 30% of the estimated cost of the acquisition
"Buy and Make (Indian)"
Purchase from an Indian vendor including an Indian company forming joint venture/establishing production arrangement with the original equipment manufacturer, followed by licensed production/indigenous manufacture in the country must have minimum 50% indigenous content on cost basis