How govt wastes Rs800 cr by trying to save money

NEW DELHI: It's the ultimate paradox. An organisation set up to ensure that government departments get the most competitive prices for the things they purchase may be wasting more of taxpayers’ money than it saves.

A DNA investigation into some aspects of central government purchases shows that annual losses could be of the order of Rs800 crore or more on purchases made through the Directorate General of Supplies & Disposals (DGS&D) rate contract. And this could be happening because of the stranglehold of powerful supplier cartels.

DNA focused on the pricing of 10 items that are freely available in the retail market. These included items like air-conditioners, water geysers and coolers, inverters, woollen underwear, computer desktops and laptops.

What we discovered was that in nine cases out of 10, the DGS&D rate was substantially higher than open market prices. The lone exception was air-conditioners.

According to DNA estimates (see box), the government is paying 25-30% more for bulk purchases compared to retail prices for the same products. A case in point is inverter. The DGS&D has signed contracts with eight manufacturers spread over India, of which seven have signed contracts at the same price of Rs12,896 (for 800 kva, the commonly used version).

When DNA enquired about the prices of 800 kva inverters in the open market, the prices quoted were 16-25% less - in the range of Rs10,000-11,500, depending upon the brand and the number of inverters to be purchased. As DNA compared more products and rate contracts, the story of the Indian government’s purchases became more and more ludicrous.

The retail price of a computer laptop with Intel Core Duo technology costs anywhere between Rs33,000 and Rs43,000. The DGS&D, however, would like all government departments to purchase such laptops at a premium of Rs10,000. All companies that have signed rate contracts for laptops have pegged the cheapest option for a Core Duo laptop at Rs53,000.

Though the prices of computer desktops and peripherals have dropped significantly in the last one year, the drop is not indicated in the rate contract signed by the DGS&D with manufacturers. The DGS&D will continue to buy basic desktop computers at Rs38,500 till September 2008, when the current rate contract expires.

In the open market, a basic starter model costs less than half this amount. Computer dealers based in Delhi were ready to drop the price of a basic computer to Rs12,000 if the order quantity was more than 20 pieces.

Despite this, the DGS&D’s annual report claims that IT hardware prices are stable because of a competitive market. “For IT directorate, prices are stable due to fierce competition,” the report says.

“If the competition is so fierce, then how are all manufacturers selling desktops at Rs38,870 (to the government) – at the price of a basic Celeron laptop?” asks an official within the DGS&D. The official, who believes that cartels have colluded to keep rate contracts high, agreed to an interview on the condition of anonymity. 

The DGS&D rate contract is the rate at which government departments can buy goods without getting into a detailed tendering process. The rate is negotiated centrally after a competitive bidding process, both with a view to assuring quality and obtaining a good price. Contracts signed with manufacturers are valid for a year or more, depending on the product.

The value of orders routed through the DGS&D has steadily increased over the last 10 years from a level of Rs2,075 crore in 1996-97 to Rs3,053 crore in 2005-06

“The rate contract ensures that the buyer does not have to haggle over prices and there is no corruption in the entire process.

The prices are fixed by the DGS&D and the supplier or manufacturer can deal with any government department directly,” says a DGS&D official who spoke on condition of anonymity.

However, the Central Bureau of Investigation (CBI) is presently investigating at least eight cases against DGS&D officials in various parts of the country. Two of these cases are against very senior officials in Delhi, while three are in Kolkata, two in Jammu and one in Jaipur.

Manufacturers who have signed rate contracts for a variety of products say that though the prices may appear higher, there is nothing criminal or illegal in it.

“The DGS&D signs contracts with many manufacturers in any given product category. The prices in the rate contract do not have to match the retail prices of the product in the market.

Prices are arrived through a tendering process, where the lowest rate in each category is the price at which the rate contract is signed,” says a manufacturer who supplies electric fans to various central government departments.

This does not, however, explain why a 25-litre geyser on the DGS&D rate contract costs anywhere between Rs2,900 and Rs3,200 when the same can be purchased from the retail market for 10-20% less. Quite clearly, the DGS&D is not proving to be the cost-saver it is supposed to be.