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GeM: Bringing transparency and optimal price discovery to defence procurements

Commodore B.K.Munjal,

VSM, Advisor (Defence)

STRAP: “Out of 56 ministries onboarded on GeM, The Ministry of Defence (MoD) stands out as one of the top procurers in terms of both order value and quantity. The GMV of the procurements by the Ministry of Defence was around ₹1,34,200 crore, till 2 August 2024, since inception.”

INTRO: “GeM offers various options like direct purchase, L1 procurement, bidding and reverse Auction. The last option of reverse auction has the potential to lead to much better price discovery. Studies done by organizations like World Bank, IIM Lucknow and BCG show that there is an average saving of 10% during procurement through GeM. In some of the transactions, the competitive bidding through Reverse auction on GeM has led to savings of around 20-25%.”

This was stated by Commodore B.K Munjal,VSM, Advisor (Defence), Government e-Marketplace

Edited excerpts:

What are the key challenges that the Ministry of Defence faced in defence procurement in India before the coming of the Government e-Marketplace (GeM)?

The biggest challenge that we faced was the lack of transparency or information asymmetry. There was no standardization of the procurement process and there was the constant need for manual intervention. There was also the lack of regulatory compliance and oversight. Since the system was spread across several portals and systems, the total demand was scattered. The procurement cost was often on the higher side because the high entry barriers led to a limited supplier base. It was almost impossible for the MSMEs and startups to participate in the government tenders. As the online integrations were limited, the transactions were time-consuming and complicated.

What kind of procurement options is GeM offering to the Ministry of Defence buyers?

GeM offers various options like direct purchase, L1 procurement, bidding and reverse Auction. The last option of reverse auction has the potential to lead to much better price discovery. Studies done by organizations like World Bank, IIM Lucknow and BCG show that there is an average saving of 10% during procurement through GeM. In some of the transactions, the competitive bidding through Reverse auction on GeM has led to savings of around 20-25%.

In the case of defence procurements through Defence Public Sector Enterprises, where procurement at times is on Nomination basis what advantages is GeM providing for them to undertake procurement through GeM?

In the cases where the procurement is being done from another DPSU or CPSE on a nomination basis, price discovery might not be an issue. But even in such transactions, GeM offers advantages like online monitoring of the transaction so that there is timely delivery, timely payment, post contract management and other facilities. DPSUs have sold goods and services worth more than 18,000 Cr so far through GeM and have procured goods/services of Rs 55,748 Cr through GeM since inception and of rs 14,300 Cr in the current FY. To take care of the unique needs of MoD procurements, we have introduced features like longer delivery period of up to six years, multiple-stage payments, multiple trials and inspection by various agencies like DGQA/NABL accredited labs on the GeM portal.

What is the key advantage that GeM is offering to MoD buyers?

One of the key advantages of leveraging GeM for defence procurement is the potential for standardization and scalability. GeM ensures transparency, speed and significant cost reduction in all procurements. By aligning its procurement strategies with the capabilities of GeM, the Ministry of Defence has been able to achieve efficient, transparent, and cost-effective procurements across a range of products and services which are essential for enhancing the country’s defence capabilities. Due to such advantages being accrued to MoD buyers, they are even procuring capital goods through GeM including bullet proof jackets, ballistic helmets and modular ballistic vehicles through GeM. DPSUs have even procured Ground Support equipment including radars, launchers and HMVs of Akash Missile, submarine masts, Kavach chaff launchers through GeM. Their confidence in GeM and its security architecture is an example for other buyers to emulate.

How does the Ministry of Defence compare with all the Ministries that are onboarded on GeM?

Out of 56 ministries onboarded on GeM, The Ministry of Defence (MoD) stands out as one of the top procurers in terms of both order value and quantity. The GMV of the procurements by the Ministry of Defence was around ₹1,34,200 crore, till 2 August 2024, since inception. This GMV has been achieved through 62,27,200 orders. In the last financial year, the GMV of the MoD procurement was ₹54, 832.69 crores This impressive GMV has been generated by the Ministry of Defence across a network of over twenty thousand buyers. In FY 23-24, 1,452 new primary buyers were added. In the last 7 years, the Ministry of Defence has placed 58,15,324 orders and 27% of these orders were executed in FY23-24.

How much does defence procurement contribute to the overall GMV of GeM?

Procurement by the Ministry of Defence buyer contributes to around 14% of total GMV of GeM. If you exclude the procurements by various state governments and consider only the procurement by the Central Ministries, then the contribution of MoD in GeM’s overall GMV turns out to be much higher. MoD’s GMV has consistently grown year-on-year by an average of 91%, reflecting continuous expansion and progress. For instance, in FY 21-22, the GMV of MoD procurements was ₹15,092.50 crore, in FY 22-23, it was ₹28,732 crore, and in FY 23-24, it was ₹54,832.69 crore. In the four months of the current financial year, MoD has already achieved GMV of Rs 25,000 Cr and is aiming a GMV of Rs One lakh Cr by end of the financial year