Public Procurement and PPP Cartels

One of India’s greatest challenges in competition policy is the intersection of public procurement, Public-Private Partnerships (PPPs), and cartel activities. There are still persistent sector-specific challenges dealing with competition in these sectors, despite the country having a comprehensive legal framework in place under the Competition Act of 2002. Analysing half a decade of cartelization and bid-rigging cases highlights the enforcement gaps in these sectors. Urgent reforms are needed in the public cartel procurement system after a steady decline in penalty enforcement to a striking 0.1% in 2022-2023.  

Enforcement Landscape: Scale and Sectoral Distribution

There is a dominant enforcement impulse in the last five years, as evidenced by the CCI resolving 35 public procurement-related cartel cases. These public procurement-related enforcement activities uncover alarming collusion, particularly in sectors vital to public infrastructure and services. The railway sector is one of the problematic ones, with the total investigated cases and recurring procurement problems with axle bearings, protective tubes, and HPPA/SLPR bushes.

The health and pharmaceutical sectors account for 14.3% of cases, often involving the procurement of standardized medical supplies with restricted supplier networks that foster collusion. The other 51.4% of cases relate to miscellaneous sectors, illustrating how procurement collusion is not limited to a specific commodity and permeates various sectors. 

The sharp drop in the rate of penalties enforced, perceived as an enforcement efficacy indicator, is perhaps the most concerning development in the enforcement of competition law in the country. After a modest but meaningful 13.2% enforcement rate in 2021-22, the rate plummeted to a staggering 0.1% in 2022-23. This steep decline reveals the difficulties in effectively enforcing frameworks designed to regulate such behaviours. 

Legal and Regulatory Architecture

The India Competition Law in 2002 provides a comprehensive framework to deal with anti-competitive behaviour and practices. Section 3(1) prohibits anti-competitive agreements which are likely to result in appreciable adverse effects on competition, and Section 3(3) focuses on horizontal agreements that include price-fixing, bid-rigging, and market allocation among competitors. The Act simplifies the investigation of cartel cases by weakening the burden of proof that competition authorities must provide by creating a presumption of Appreciable Adverse Effect on Competition (AAEC) for these practices. 

The public Procurement Framework consists of many overlapping layers which regulate the purchasing activities of the public sector. The General Financial Rules (GFR) 2017 provides primary governance through Rule 151, which gives a Code of Integrity which prescribes debarment for fraud and collusion, whilst Rule 175 prohibits any form of competition ruiners in the public procurement of goods and services.

The Government e-Marketplace (GeM) established payment and delivery protocols for the procurement of goods and services, which enables quicker and easier access to procurement by the departments of the government. However, these protocols do not provide sophisticated mechanisms for the detection of bidding cartels, which are identifiable through suspicious bidding patterns. 

Landmark Case Law Analysis

The 2015 Insurance Companies case RSBY Kerala is one of the most noteworthy cases of enforcement action resulting in a fine of ₹671.05 crore due to email and meeting minute evidence of blatant collusion among the insurers. The 2018 HPPA & SLPR Bushes case exposed collusion through WhatsApp messages and IP addresses, which lowered the fine to ₹1.16 crore due to a successful leniency application.

The Supreme Court of India in its Rajasthan Cylinders v. CCI case (2018) ruled on the issue of cartelization and set an important precedent. The court held that price parallelism by itself does not constitute cartelization. The judgment raised the competition authorities’ burdens of proof significantly. It stressed that competition authorities should/use refined methods of investigation. 

In the context of modern technological advancements, collusion has been evolving, reflecting more sophisticated methods of anti-competitive behaviors. Coordination via WhatsApp, email, or SMS is now common and helps sustain cartel agreements in a more covert manner. Some collusion involving the submission of identical bids at strategically computed multi-decimal places in bulk is a clear sign of collusion. 

Global Comparative Framework

The US has a strong Inter-Agency Collaboration and Advanced Data-Driven Analytics, which has led to over 100 successful prosecutions with the DOJ Procurement Collusion Strike Force. The European Union applies Article 101 TFEU and fines up to 10% of the company’s global turnover.

The implementation of sophisticated technological solutions holds great potential for improving the detection of cartels and their activities. Some research prototypes using artificial intelligence and machine learning, including convolutional neural networks (CNNs) and graph attention networks (GATs), have detected patterns of bid-rigging in Japanese and Swiss procurement datasets with 90%–95% accuracy. However, the deployment of such sophisticated technologies in the Indian context is hindered by a multitude of problems such as the e-procurement systems being fragmented vertically and in layers across different government tiers as well as the insufficient level of digital infrastructure adoption in most procurement processes.

Policy Recommendations and Reform

An overhaul of India’s anti-cartel enforcement framework requires collaboration across institutional, legal, and technological boundaries. Creating a Centralised Public Procurement Competition Unit within the CCI would allow for focused anti-cartel enforcement by consolidating expertise and granting direct referral powers. Such a specialised unit should be empowered to order CCI evaluation of all tenders and PPPs over ₹100 crore, ensuring comprehensive management of high-value procurement activities that incur and invoke the most adverse and pernicious impacts from cartelization.

AI-driven oversight of the entire procurement lifecycle will facilitate real-time detection of anomalies in bidding patterns with the ability to cross-tender analysis, identify repeat offenders, and fully integrate nationwide data analytics of e-procurement data. Such sophisticated technology will strengthen the CCI’s detection capabilities concerning sophisticated cartel arrangements that are likely to evade detection by conventional enforcement tools.

Considering the railway sector’s share of cartel cases, it requires more focused measures, such as the automatic centralisation of procurement through CCI-controlled e-platforms for items above ₹10 crore, intensive supervision of standardised parts procurement, which is especially prone to collusion due to sparse supplier diversity, and collusive technical specifications that aid coordinated procurement. 

Healthcare procurement accounts for 14.3% of cartel cases, and implementing price monitoring for the procurement of generic drugs, as well as unified procurement strategies geared towards avoiding coordinated pricing among pharmaceutical suppliers, will ensure that essential medicines are priced competitively.

Conclusion

The integration of legal frameworks, technological prowess, and enforcement mechanisms determines the competitive integrity of India’s public procurement system and public procurement. India, with enforcement-oriented regulatory frameworks, has seen a drastic decrease in realisation rates, which has necessitated public procurement penalties to an alarming 0.1%. The enforcement changes best of India’s technology, enforcement, institutional, and regulatory adaptation. Reskilling, enforcement reform, and global enforcement reform collectively shift the focus for India to be uniquely implementation-focused.

Today’s legal frameworks, combined with advanced technological enforcement tools, equip India with sophisticated pattern recognition tools which enable procurement. Only by addressing these gaps can India ensure the appointment of competing bidders who address efficiency within the delivery of public works services.