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Public Procurement and Contracting

Business Corruption

Public procurement in telecommunications and power has been subjected to allegations of corruption over the past few years, and several government employees and public figures have been indicted or convicted, as reported in the US Commercial Service 2013. Foreign companies should take note that the Indian government permits a price preference for local suppliers over foreign suppliers in government contracts. The National Manufacturing Policy encourages government procurement practices that would discriminate against foreign companies, according to the US Commercial Service 2013.

The Global Integrity Report 2011 notes cases in which companies that violated procurement regulations have managed to circumvent the law through connections and have thereby continued to participate in biddings. There are also cases where companies that have a clear record of bribery have succeeded in returning to the procurement system after having been barred from bidding. Furthermore, according to the India Fraud Survey 2012, procurement is ranked by the surveyed corporate respondents as the most vulnerable sector for fraud.

A March 2012 report prepared by the World Bank and cited in a May 2012 article by the Financial Express reveals corruption in three national highway projects funded by the World Bank. According to the report, two private contractors influenced officials and consultants of the National Highways Authority of India (NHAI) with bribes and gifts (including gold coins) in exchange for obtaining contracts.

Companies are recommended to use a specialised public procurement due diligence tool to mitigate corruption risks related to public procurement in India. See more under Public Anti-Corruption Initiatives.

Political Corruption

Public procurement and contracting in India has been marred by major corruption scandals involving high-level politicians. For example, a recent procurement scandal in India involves the country's defence department. Following a 15-month corruption investigation, a USD 753 million deal to to buy helicopters from AgustaWestland, an Anglo-Italian company, has been cancelled, according to a January 2014 Bloomberg News article. The article reports that some high-level officials allegedly benefitted from the contract and a number of companies allegedly received kickbacks in the deal.

In February 2011, the former Kerala Minister R Balakrishna Pillai and two other officials were all sentenced to one year in prison for corruption in the rewarding of a contract for a hydropower project. According to the Times of India, the prosecution asserted that Pillai had played a key role in the plot, which caused a loss of over INR 20 million to the Kerala State Electricity Board.

See more under Public Anti-Corruption Initiatives.

Frequency

World Economic Forum: The Global Competitiveness Report 2013-2014:
- Business executives give the diversion of public funds to companies, individuals, or groups due to corruption a score of 2.8 on a 7-point scale (1 being 'very common' and 7 'never occurs').

- Business executives give the favouritism of government officials towards well-connected companies and individuals when deciding upon policies and contracts a score of 2.8 on a 7-point scale (1 being 'always show favouritism' and 7 'never show favouritism').

KPMG India Fraud Survey 2012:
- Procurement is ranked by the surveyed corporate respondents as the most vulnerable sector for fraud.