Mumbai: As the Rafale deal has demonstrated, public procurement can be a controversial issue.
According to one estimate from the UN Office on Drug and Crime, public procurement in India accounts for 20-30% of GDP. A more efficient public procurement system can, therefore, have important implications for the economy.
Better public procurement can improve government functioning, and also have a significant effect on the private sector, according to a new World Bank policy research working paper by Tania Ghossein, Asif Mohammed Islam and Federica Saliola. The study finds that an improvement in the quality of government procurement systems leads to greater innovation and technology adoption in the private sector.
The authors use an overall indicator of public procurement quality from the World Bank’s benchmarking public procurement project and combine this with survey data from 59,000 companies across 109 countries. They find strong positive correlations between good public procurement systems and firm engagement, innovation and online connectivity.
A fair and transparent public procurement system may encourage greater participation from firms in the bidding process. To be competitive in bidding for procurement contracts, firms may have to be innovative and adopt technologies to reduce costs, thereby promoting more innovation in the private sector.
The study also finds that online procurement portals can generate competitive pressures with more firms adopting internet technology, thereby improving overall online connectivity in the private sector. It says this is particularly true for small and medium enterprises in developing economies. The findings are encouraging for India as it looks to expand its government e-marketplace, an online public procurement platform launched in 2016.