'Railway purchase practices inefficient'

A ten-member inter-ministerial panel has criticised the purchase practices of the Indian Railways. The committee on public procurement, headed by former Competition Commission of India chief Vinod Dhall, has called the practices of the national transporter “restrictive, inefficient and lacking in competition and transparency”.

The committee was set up by the Group of Ministers (GoM) on corruption headed by Finance Minister Pranab Mukherjee to lay down rules on public procurement of goods and services worth Rs 11 lakh-crore every year by the government.

The panel has been extremely critical of the vendor approval system that has a “restricted and opaque bidding process”. Indian Railways procure goods worth Rs 20,000 crore every year from vendors registered with the Research, Design and Standards Organisation (RDSO) or its nine production units. The panel has blamed railways for restricting the bidding process to only registered vendors.

“The system of registration discourages potential bidders from participation. It restricts competition and enhances the possibilities of cartelisation and corruption. It is not an open bidding system,” the panel said in its report. The panel has also warned railways against violating the Competition Act 2002 owing to “restrictive practices that may amount to an abuse of dominance”.

It has also raised concerns over the inefficient and uneconomical vendor development system for annual purchases made by the railways. Ideally, the buyer should assure a minimum off-take for some years to enable the vendor to recover the investment, the committee noted.

The panel has said all vendors should be allowed to compete for advertised tenders irrespective of whether they are registered or not, discontinuing the process of vendor registration by RDSO beginning April next year and confining its role to testing for quality assurance and assured off-take by railways for a minimum of five years.

The Dhall committee has called for not continuing with the national transporter’s practice of single-source procurement based on annual bids that assures continuous payment of “monopoly rent” to suppliers like the US-based Electro Motive Diesel (EMD).

Citing an example, the panel said the Diesel Locomotive Works (DLW) at Varanasi continues to import 35 per cent of components, despite signing a technology transfer agreement with EMD in 1997.

The Dhall committee also raised doubts over the “opaque manner” in which railways is holding bids for the proposed Marhoura locomotive project in Bihar.

The rail ministry has contested the allegations by calling them “selective use of data with an intent to arrive at pre-determined conclusions”. Apart from the railways, the committee has also raised serious concerns over procurement practices by the defence ministry and the Directorate General of Supplies and Disposals, an arm of the Department of Commerce.

Seven of the 10 members of the Dhall committee have submitted dissent notes to the report. This, according to experts, points at the difficulty of achieving a consensus on a public procurement policy.