Due to exchange rate fluctuation, IT industry is unable to meet the commitments it has made in its contracts with the government. There is a need to simplify procedures within the DGS&D
By Nitasha Chawla
Friday, August 16, 2013: The central government is the single largest customer for the ICT industry, procuring around Rs 50 billion worth of ICT equipment annually. This accounts for about 29 per cent of India’s GDP. However, various issues affect the ICT procurement process of the government, which is a matter of concern. At a recently held seminar by the Manufacturers’ Association for Information Technology (MAIT), held in association with the Directorate General of Supplies & Disposal (DGS&D), the Ministry of Commerce, some key issues and challenges related to the public procurement process were discussed.
JV Ramamurthy, president, MAIT, said, “Due to the exchange rate fluctuation, we are unable to meet the commitments made in the contracts with the government. There is a need to simplify procedures within the DGS&D. There needs to be more thinking on essential facets such as the extension of services and support in remote areas, managing the lifecycle of products, inventory audits, etc.”
DGS&D is also working on removing the bottlenecks from the procurement procedure and improving the overall system. Sathya Narayan Mohanthy, director general, DGS&D, said, “We are trying to bring in new schemes like deemed registration and the tatkal scheme. Essentially, we are welcoming more firms to register with the DGS&D system, as we require a large number of bids cutting across geographies.” About the duration of the procurement process, he said, “We are in the process of reducing the duration to two-three months — two months for the already existing items and three months for new products.”
Key issues of procurement process
Implementation of ERV clause in RCs: The current exchange rate variation (ERV) clause provides a fluctuation buffer in exchange rates for contracts of 18 months and above. Therefore, the DGS&D’s rate contracts (RCs), which are for a period of one year, are outside the purview of ERV. JV Ramamurthy said, “Last year, the defence procurement budget fell short by 13 per cent because of ERVs. It is, therefore, important to include the ERV clause in the procurement contracts.”
Decentralised payments through CCA: DGS&D is working on a proposal that offers end users (procuring ministries and departments) a choice between availing the payment option through the existing controller of accounts (CCA) route and making direct payments to the vendors.
However, the ICT industry is against the decentralised form of payment as it would require the industry to allocate at least three times as many man hours to track payments from the government. The industry is of the opinion that for the ICT sector, the payments should remain centralised through the CCA, since the delivery locations are numerous for even a single order, and the cost of doing business will go up significantly if payments are decentralised.
Absence of a mechanism to support innovation: The industry perceives the current procurement process as a barrier to domestic innovation, since there is no provision for the R&D efforts of the industry to translate into government sales. As a result, the start-ups that often develop innovative products don’t get an opportunity to showcase their talent. This also results in IP loss to India, as the start-ups end up selling their innovations to private and public sectors outside India.
According to Sathya Narayan Mohanthy, the rate contract (RC) considers a minimum of three bids as of now and he is working to improve the openness of RC participation. “Thousands of users depend on RCs, and therefore it is imperative for us to create value in these contracts. Hence, we are trying to bring in innovative products under RC contracts,” he said.
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