On 25 January 2021, US President Joe Biden signed an executive order which mandated that, wherever possible, federal agencies should "maximize the use of goods, products, and materials produced in, and services offered in, the United States.”
The move, in line with his commitment to rebuild America’s middle class and create more jobs in the country, mirrors a similar appeal by Prime Minister Narendra Modi last year.
The Prime Minister gave a clarion call for India to become aatmanirbhar or self-reliant, in the wake of Covid-19. The aim was to promote the use of Indian goods and services as widely as possible, and strengthen domestic industry. Since then, various government organisations have taken several proactive steps to promote his vision.
In a circular issued in July 2020, the government mandated that all cabinet notes should explain how new proposals help in realising the goal of self-reliance.
Similarly, the Defence Production and Export Policy, 2020, aims to make India a leading manufacturer and exporter of defence products by 2025. Even the recent Union Budget was pegged to the Aatmanirbhar Bharat vision.
However, when it comes to certain segments of the services sector, this vision of a self-reliant India is found wanting. Take, for instance, consulting services — that range from formulaic management consulting to technology-led and data-driven analytics, and tailormade support for policy design and implementation.
It is a fact well-known that most government contracts/tenders are cornered by a handful of big firms, whose footprints are visible across the world.
Although they’re located in India and hire Indian employees, they distort competition for local counterparts through a range of methods, which ultimately harms the economy.
It’s also well documented that these firms usually draw up roadmaps of large projects in advance of their tender, and use their market dominance to cross-sell their services, practices that negate chances of fair competition. This often leads to long-term dependence on global firms in sensitive areas of government administration.
Another reason why local consulting firms lose out to global giants is because of the eligibility/qualification criteria in public procurement tenders. Often, governments use turnovers as a benchmark to decide which consulting firm will be awarded a certain contract.
Due to their global presence and large turnovers, such firms get an unfair advantage over their smaller Indian counterparts that may possess the same skill sets. Benchmarks like track records and turnovers, employed in the manufacturing sector, can’t be used to judge companies operating in the services industry.
They don’t portray an accurate picture of Indian consulting firms that are as skilled and talented as their global counterparts. For instance, homegrown firms have recently found a niche in data-driven consulting that could be useful in a country where decisionmakers have long struggled to gather reliable evidence. This niche is a natural corollary of the fact that Indians have long excelled in areas like computer science and statistics.
In order to make management consulting self-reliant, the government can consider a multidimensional approach. First, a larger share of all public procurement funds for consulting can be awarded to small and mid-sized firms. After all, most multinational consulting firms are already large and, consequently, self-reliant.
The Micro Small and Medium Enterprises (MSME) Act stipulates that 25 per cent of all procurements by central government departments and public sector undertakings will be from the MSME sector. Some commentators have argued that, in practice, several barriers limit these benefits from reaching the MSMEs.
These include mandatory eligibility clauses, such as the number of purchase orders previously executed. Such entry conditions must be relaxed and the 25 per cent threshold can even be revised upwards in services like consulting, where the size of a firm doesn’t determine its competency.
Similarly, states could also increase their procurement from smaller firms, in areas where there is enough local capacity.
Second, expertise, should be the key criteria to award consulting services contracts, not price. When price is given preference in specialised services, the concerned department must provide a concrete justification for it.
During Covid-19, several multinational consulting firms even provided backstopping support to government departments without pay. This proves the value of government engagement to firms that may monetise such relationships in higher value projects. They also retain the ability to outbid smaller firms for strategic projects, that may yield benefits elsewhere.
There is also a need to build public awareness around the importance of a quality-centric paradigm, so that bureaucrats can take risks and award contracts to demonstrably competent local firms, without fear of frivolous investigations.
In fact, a concept paper issued by the Central Vigilance Commission in 2019 talks about the need to revisit India’s fascination with the ‘lowest bidder’ (L1) tendering norm. While this was mooted in the context of high technology or infrastructure projects, the NITI Aayog has also acknowledged the hazards of L1 in a wider procurement context.
Therefore, it is important for the central government to set qualitative standards to award services contracts. Else, large global firms will continue to corner public procurement contracts and self-reliance will only be a pipe dream for India’s talented consulting firms.
And finally, public procurement of services is exempt from most international rules that limit a country’s ability to provide exceptional support to domestic companies.
The World Trade Organization also does not subject its members to any obligations linked to government procurement of services. Therefore, the sector is the perfect proving ground for aatmanirbharta, through deployment of India’s untapped human capital in areas like consulting, where local firms can benefit from well-designed preferential procurement.
*The authors are founders of domestic consulting firms. Their views are personal.
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