GeM Could Edge Demonetization as an Anti-Corruption Tool

By Sarah Watson —

India’s new Government e-marketplace website has the potential to cut down on corruption during the procurement process. Source: Wadhwani Chair staff.

In late November Bloomberg reported on a recent Indian government initiative that had largely been drowned out by the chaos of demonetization: a plan to shift all of central government procurement to a single online portal, the Government e-Market (GeM). Modeled on Amazon and other online marketplaces, GeM is meant to increase the transparency and cost-competitiveness of government procurement by partially replacing the complex system of bids and tenders with a much more straightforward “marketplace” model for the most common products and services. While the marketplace is still small, if it is widely adopted it could turn out to be a far more consequential corruption-fighting tool than the government’s higher-profile demonetization campaign.

Globally, public procurement is estimated to make up about 15 percent of gross domestic product (GDP). In India, however, with its relatively large state apparatus, the UN Office on Drugs and Crime estimates that public procurement makes up from 20 to 30 percent of GDP. The Directorate General of Supplies and Disposals, the government department that handles procurement for smaller agencies, spends about $1.5 billion per year. Eliminating corruption in this area could have an inordinate impact, directly freeing up government resources needed to subsidize food and healthcare, fund infrastructure development, and supply India’s armed forces. Before the introduction of GeM, India’s primary response to this challenge was the 2012 introduction of the Public Procurement Bill, which has languished in Parliament for four and a half years.

The Public Procurement Bill exempts any procurement worth less than $73,000 (50 lakh rupees) from its protections against corruption, thus focusing its efforts on major purposes. GeM, by contrast, works from the opposite direction, focusing on the small bread and butter purchases that are made many times a day. Purchases of less than $740 (50,000 rupees) can be made “off the shelf” — by simply selecting a product and purchasing it. Government purchasing managers seeking office chairs, for example, will be able to log on and select a vendor based on price and the qualities of the chair. Larger purchases require a tender and bid process, all of which is conducted online in a transparent fashion.

Using a single marketplace could allow bidders from across India to take part on an equal playing field, eliminating cozy networks of buyers and sellers that are protected from market forces. Purchasers also have to take direct responsibility for their decisions by providing their name and Aadhaar number, a further inducement to make a defensible decision. Finally, the site makes the records of transactions easily available for future review. As the site grows, it will create a wealth of data that can be mined for suspicious patterns indicating collusion or other types of corruption.

GeM remains a relatively small-scale endeavor. As of the end of November, government buyers had made about $5.6 million in purchases through the site in just under four months, and only 3,100 products were available. Two of the nation’s biggest procurers by value, the Ministries of Defense and Railways, are not yet using the site to make their purchases. And of course GeM will never be a platform for negotiating the country’s largest and most lucrative contracts, such as those in the defense sector. This is where corruption on a grand scale is most likely to take place.

But despite its relatively modest aims, GeM — far more than demonetization — is at the cutting edge of scholarly consensus as to what works in the fight against corruption. Research on when and how technological interventions reduce corruption suggests that they work best when they are simple, enforce transparency, and bring citizens into the review process. GeM checks the first two boxes (in fact, it may make procurement simpler than under the previous approach). And the government could bring citizens into the process by making the first year’s data available for review after stripping the personal identifying information of the purchasing officers. Making data available will allow citizens to ask why their local district office paid $1,000 for a basic desktop computer, for example, when a neighboring office procured the same thing for $500 the previous day.

GeM also is consistent with a growing recognition that relatively simple interventions can cut widespread but small-scale corruption by making it slightly more difficult to carry out. CogitAsia has previously reported on how the digitization of Haryana’s school records exposed half a million “ghost students”—nonexistent children who had likely been entered into the rolls by school officials seeking to pocket the funds allotted them for mid-day meal or textbooks. By requiring simple information about each student, such as date of birth and Aadhaar ID number, the new system made fake records harder to create and much easier to spot. Less anecdotally, a large-scale study of leakages of funds used to pay workers under the Mahatma Gandhi National Rural Employment Guarantee scheme in the state of Bihar found that a few simple changes to the way the program was administered cut expenditures by as much as a third, even though local residents reported that they were getting as much work as they had previously done. These changes included a switch from old requirements, which mandated prior dispersal of funds according to projected need, to a new system under which local governments had to request funds based on an itemized list of workers and hours actually worked, entered via an electronic system.

Fulfilling the potential of GeM will require sustained effort and political will. Making it the default site for all non-classified government purchases will require pressure from the Prime Minister’s Office. And unless data from the site is regularly released for analysis by the Comptroller and Auditor General as well as citizen watchdog groups, it is possible that purchasing officers and sellers will find new ways to cheat the system. But if properly used, GeM has the potential to transform government procurement and eliminate a major source of black money.

Ms. Sarah Watson is an associate fellow with the Wadhwani Chair in U.S.-India Policy Studies at CSIS. Follow her on twitter @SWatson_CSIS.

Sarah Watson

Sarah Watson

Sarah Watson is an associate fellow with the Wadhwani Chair in U.S.-India Policy Studies at CSIS.


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