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Wednesday, December 20, 2023

A note on Public Procurement

In a feat of digital procurement, Central Public Sector Enterprises (CPSEs) witnessed a staggering Rs 1 lakh crore procurement in FY 23-24 through Government e-Marketplace (GeM). A commendable achievement. Now, that the good news is settled, we will be discussing insights on public procurement below:

Given the enormous size and the stakeholders' vested interests, public procurement is entangled in unfair practices. This leads to an entry barrier and a cause for significant transactional costs arising from, for example, delays in payments and bribery required to get them released. One can read Insights into cartels, bid rigging, fr, ads and other corrupt practices: Collusions in Public Procurement (cag.gov.in).

Among the serious issues highlighted by private companies that work on government projects is receivables because the Indian government is an all-powerful entity with the ability to delay/deny payment. Pavithra Manivannan and Bhargavi Zaver who are the researchers at the CMI-Finance Research Group have authored a blog post: How large is the payment delays problem in Indian public procurement?

The government allocations for social welfare have increased over the years, although the utilization of funds has remained low due to procedural difficulties, straitjacketed rules, delays in payments, corruption, and political interference. This disrupts nonprofit operations and undermines nonprofits’ attitudes towards working with the government, which has a more detrimental effect on public service delivery.

This reflects the dichotomous principle of government which on the one hand advocates for greater transparency and efficiency of government organizations and on the other hand refuses to penalize these organizations for huge delays in the payment to the vendors.

Issues created due to poor public procurement:

1. Many firms do not take part in public procurement as the government procuring entities often delay releasing the payments. The firms that are part of the public procurement face working capital shortage since delayed payment affects companies' cash flows negatively. Unless this money is unlocked, the problem of the payment percolates and is reflected in banks' stressed assets.

2. This is like Gresham's law (Bad money drives out good money) but in the public procurement domain. The payment delays impose an unnecessarily heavy burden on small firms, potentially knocking them out of the competition and discouraging them from participating in other procurement processes. Now all that is left are the big firms that are either immune to corruption or the firms that adopt corrupt practices. The more valuable 'good money' gradually disappears from circulation.

3. The government is legally liable to pay on time but the firms don't enter into a dispute for the delayed payments. The dispute with the government creates bad faith for future bids and contracts. If the procuring officials are themselves responsible for causing grievance, there is little chance of the aggrieved bidder getting his due from such a redressal system. In addition to that India does not have an Independent Grievance Redressal Mechanism in the procurement system.

4. It is worth noting that India hasn’t even signed the Government Procurement Agreement (GPA) as a member of WTO. Only recently, India has included government procurement in the India-UAE Comprehensive Economic Partnership Agreement.

5. Public officials also determine which vendors will thrive and which will fail by setting the terms and conditions under which public procurement takes place. This situation creates a situation of cartelization from the supply side.

Remedies:

1. Every organization has an incentive to conceal perceived areas of poor performance in public procurement. The government has to create independent and effective oversight processes where data on delayed payments is openly & easily available for public scrutiny.

2. Strengthening the monitoring mechanisms must lead to the creation of a strong knowledge management system for establishing best practices and creating institutional memory.

3. A lot of issues can be resolved if dispute resolution and claim settlement are faster.

4. Opening up government procurement to global competition with best-in-class project management and governance practices will help improve the quality of government projects.

Sunday, October 9, 2022

Agriculture and Colonialism

The study of colonialism is incomplete without understanding the role of export agriculture and plantation economy. The hidden factors behind the industrial revolution and the advent of the modern era have a dark history of racial slavery, imperial violence, and oppressive economic exploitation of natural resources to extract exceptional profits from the colony.

Colonialism was an economic prescription, a set course of augmenting European profits and markets by extracting natural resources (such as food, rubber, minerals, and lumber) and people (through slavery and indentured servitude) from colonized regions. The key facets of colonial-era agriculture were forced consolidation of land-holdings, slavery and servitude, and the increased globalization of foods, all of which modified people’s access to different varieties of food, altered people’s subsistence patterns, and entwined peasant farmers into the global capitalist economy. [Source]

Tobacco, Spices, scents, and silks were the core commodities of world trade for millennia. The expansionist policies of Europeans accelerated the exploration of far-off lands ranging from the United States, Latin America, and the Caribbean, to Asia and Africa. Initially, the desired African goods were gold and ivory, but from the early 1700s, the slave trade became dominant.

Colonial-era agriculture was organized around export-oriented, cash-crop production, ushering in centuries of plantation economies to export commodity products such as Indigo, Tobacco, Banana, Sugar, Tea, Coffee, Cocoa, Cotton, Palm Oil, and Rubber. Unlike small, subsistence farms, plantations were created to grow cash crops for sale on the market. The plantation system was an early capitalist venture and proved to be profitable. Therefore, cheap labor was used. Initially enslaved African and Indigenous people to work the land was replaced with indentured Indian, Malay, and Chinese populations. A brief account of the history of slavery in plantation agriculture can be read here.

The emergence of export agriculture began during the protracted abolition of the Atlantic slave trade, decades before the European Scramble for Africa (the latter happened essentially between 1879 and 1903). The major products were groundnuts (peanuts) and palm oil. The former was produced for export on the coasts and estuaries of western Sudan (mainly from Senegal, the Gambia, and Guinea Bissau) the latter from the forests of the Guinea coast (especially from Sierra Leone to south-eastern Nigeria and into Cameroon). The 1880s to the 1900s saw the global frenzy for wild rubber, which West Africans helped to supply, from what became French Guinea east to what is now Ghana. [Source]

Tea consumption took off with the industrial revolution in Britain, initially sourced from China through an East India Company monopoly. The trading of tea created a balance of payment for Britishers due to payment with silver bullion. British merchants would first buy tea in Canton (Guangzhou) on credit and would pay their debts by selling opium at auction in Calcutta. This opium was then transported to the Chinese coast aboard British ships, where it was sold to native merchants who would sell it in China. The opium trade was a precursor of the opium wars between the British and China. When this monopoly expired amid growing unrest in China, the British imperial government in India took a strategic interest in fostering tea production in northeastern India where a semi-wild tea variety was already growing. The rights of contracted workers were subjected to many cases of abuse (death rates were high in the early years) and labor rights and conditions have continued to be an issue until today.

Under colonial-era laws, many tenant farmers in India were forced to grow some indigo on a portion of their land as a condition of their tenancy. Cash crops like indigo and opium encroached on the food crops growing area and produce was then bought by the Raj at unfairly low prices. Champaran Satyagraha of 1917 in politics and Nil Darpan, a Bengali play written by Dinabandhu Mitra are widespread documentation of colonial interference in agriculture.

Colonialism throughout the world has had lasting consequences on land management practices, relations between different social groups, and forms of subsistence. The colonies paradoxically had to begin importing food since cash crops generally took a majority of the available farmland, sometimes up to 80%. The governments of the occupying countries often imposed harsh new laws and taxes on the indigenous people. The large plantations drove out the small landowners and left the sharecroppers permanently in debt. These land purchases present short-term benefits to the local communities in the form of jobs and capital for rural development but destroy local social systems and displace people for their livelihood.

Similarly, “free trade” policies, such as forcing developing countries to eliminate agricultural subsidies while the US Farm Bill maintains subsidies for their own corn farmers, reproduce colonial-era practices. The expansion of the plantation system today is following the same script ( China & Gulf Countries) as played out in the past. Private investors and governments have recently stepped-up foreign investment in farmland in the form of purchases or long-term leases of large tracks of arable land, notably in Africa.

Friday, June 17, 2022

What ails Krishi Vigyan Kendras (KVKs)?

What is the objective of Krishi Vigyan Kendras (KVKs)? The government of India has set up 727 Krishi Vigyan Kendras (KVKs) to undertake significant activities across the country with the mandate of technology assessment and demonstration for its application and capacity development. KVKs organize training programs for farmers including rural youth and women farmers for their knowledge and up-gradation of their skills in agriculture and allied sectors. Besides these, various agro-clinical services like soil, water, leaf, and petiole analysis for effective nutrient utilization and disease and pest analysis are also provided by the KVKs.

KVKs are envisaged to provide the necessary technical input and development initiatives under the District Agriculture Plans. KVKs contribute along with ICAR and the state agriculture universities (SAUs) to the preparation of the District Agriculture Contingency Plans (DACP), recommending location-specific climate-resilient crops and varieties and management practices for use by the state departments of agriculture and farmers. MoRD has joined up with KVKs to train the workers under MGNREGS for organic manure preparation and basic storage of the crop produce. Krishi Vigyan Kendras provides the skill training conducted on the Qualification Packs developed by the Agriculture Skill Council of India (ASCI) in agriculture & allied areas in compliance with the National Skill Qualification Framework.

The challenges faced by KVKs are listed below:

1. Lack of Budget and Human Resources: There are huge numbers of unfilled vacancies for technical support staff and especially scientists. Several KVKs have infrastructure such as laboratories and equipment for soil testing but lack technical assistance. There has been a reduction in budgetary allocations over the years which is minimizing the coverage of KVK activities. There have also been delays in sanctioning budgets, leading to a financial crunch and affecting the activities of KVKs housed in SAUs.

2. Failure to pay for Extension Services: The ability to pay for extension services is another significant hurdle in the effective delivery of services. This is both due to the social unwillingness to pay for government programs and the economic inability to do so.

3. Emergence of Private Extension Services: There has been a rise in the private players providing extension services to the farmers' associations and farmers. They have limited reach and generally are linked to input supply or output purchasing and contract farming arrangements. They provide agricultural extension services to the extent necessary to preserve the profit margin they gain from selling products. eg ( JFarm Services by TAFE)

KVK as part of the public extension system has to be reoriented away from traditional supply-driven, production-focused approaches, and towards more market-oriented approaches. Delivery of public extension services could be improved by introducing decentralized strategic planning, with the active participation of farmers and other stakeholders. The roles of extension in KVKs at the grassroots level are changing. These changes will involve capitalizing on ICTs as a viable option. GoI is also planning a scheme in PPP mode on the delivery of digital and hi-tech services to farmers by involving public sector research and extension institutions with private agri-tech players. The future lies in the customized solutions and diffusion of innovations in agriculture and technology to the farmers. The shift in strategy has been done in selected KVKS from target crops to target farmers' needs through all the initiatives.