Sunday, December 25, 2011

Breaking Cartel in Government

A decade ago, I worked in Pune looking after a clutch of ordnance factories. Apart from payment and costing, my office was tasked with rendering financial advice to these factories putatively known as the Khadki Group of Factories. Material procurement in factories is a regular job to fulfill production line manufacture. That kept me busy.
One particular item for production involved huge procurement cost. Only two firms had tendered – daintily sharing the quantity in almost equal measure. It gave me an uncanny feel of a cartel; the rates appeared far from market-driven. The prices quoted were about 15% higher than the previous year’s rates.
I mulled over the issue – despairing as I went along. It was a given that most procurement in ordnance factories were essentially cases of monopsony, where one buyer faced many sellers (the opposite of monopoly); hence, in this imperfect competition it’s the buyer who must dictate price rather than the other way around.  Many of the firms who supplied to these ordnance factories had no other market share beyond the factory (ies) under the aegis of the Ordnance Factory Board. Hence, I told myself, I needed to dig deeper. Without much effort, I discerned a trend: the items were being shared by the two firms the past few years, with each year’s rates going up by 10-15% – and in no particular relation with inflation rates!
          But when I went to the meeting, I was confused. The factory needed it to keep going, the lead time was 5-6 months; and obviously I could not stall production. As I sat, my mind caught in cobwebs of procedures, it came to me in a flash. I remembered a conversation I had had during inspection of another factory where a new firm had been given a small order of the same item to establish itself as an “established source”. 
       Back in my office, I got the details. Yes, the firm had been successful. That made it a “semi-established source”. But then it wasn’t enough: it could only be deemed “established” on successful completion of “two” such orders. How was I to leverage this “semi-established source” to break the cartel? Source development orders should not “normally” exceed 20% of annual procurement. I looked at the word “normally” piercingly. Then came the Eureka moment for me.
          In the next meeting, I suggested we try the “new” firm. The General Manager hemmed and hawed, citing the firm’s “semi-established” status. Finally, after long deliberation he reluctantly agreed with me to place 20% on the new firm and the balance 80% on regular suppliers. I suggested we take advantage of the term “normally” and place 40% on the new source. After much persuasion, everyone agreed. We decided to invite tenders from the new source.
       When the rates quoted by the new firm reached us, we were ecstatic: they were unbelievably lower by 58-60% of the established firms’ rates! By now, word had gotten around and the two regular firms without any prompting announced their intention to whittle prices down by 20% from their last purchase rates – effectively down by 35%! Since I wasn’t sanguine about the timely supply by the new firm, I agreed to place 20% on these two.
         We placed 40% on the newly developed source with a tight delivery schedule. That made it 40%+20%=60%. What about the remainder 40%? I kept my counsel close to my chest, hoping things panned out the way I had hoped for and the new firms delivered on its promise – quality and timeline. The firm surprised us by supplying ahead of schedule. Now I suggested repeating the entire ordered quantity. This, too, they supplied on time.
            I was over the moon. We’d broken the cartel; it also meant huge savings; the new rates willy-nilly had become the benchmark for future procurement, thereby cascading savings that ran into crores of rupees. What still rings in my ears are the words of many Doubting Thomases, predicting this was only the penetration rate of the new firm and that it sure will join the ranks of the other two and form cartel at the soonest! The new firm did neither. Instead, the next year round, they further reduced their rates! Touché.

Sunday, December 11, 2011

When White Ants Ate Away Roadrollers!

When I read the news of a senior army officer in the rank of Lieutenant General court-marshaled in the Sukhna Land scam, my mind harked back to early-1980s when I had written a piece in The Statesman exposing corruption in the defence forces.
Fresh from training, I worked in Siliguri as Assistant Controller of Defence Accounts, when I came across improbable and grotesque cases of government loss getting readied for write-offs. One, I remember, concerned white ants (poor dears!) eating away road-rollers!
“How many geological eras it took the white ants to eat away the road-rollers?” I had asked an august officer, who came pleading to me – to settle the objection.
“Maybe, a few, just a few,” he had replied, coughing, the waving gall of his hands, conveying how asisine my question was. He didn’t bat an eyelid; his tone was glib and macho – missing the innuendo of my question.
Another related to cyclone menace – along the Himalayas. These were systematic losses, perpetrated quarter after quarter, with unremitting variance. I knew they were white lies, most disingenuously contrived. I didn’t wish to get into an argument. Instead, I referred the issue to the meteorological department of the Government of India for confirmation of the cyclone dates. Most naturally, the department confirmed what everyone knew: No cyclones. No cyclone ever strikes the trans-Himalayan belt! There.
I wrote all of this and more, in the piece. Woe betides me for committing the blasphemy, this singular unpardonable crime of a fifth columnist – for raising my voice against dishonesty and corruption! Understandably, there was a farrago of protest. How could a government servant, privy to official goings-on, write a piece in the national media ranting against pious official functioning? How could any one, and least a youngster, speak ill of the vaunted holy cows that the defence forces were? Did he seek permission for doing so? If he did, who granted him the permission? If not, why mustn’t he be proceeded against for violating the Conduct Rules government servants are bound to? As also the sacrament – the sacred Official Secrets Act of 1923?
The issue remained on the boil for two years in musty official files and the power-packed official corridors. My reply, spirited and unapologetic, was finally given an unlikely burial after a few of my seniors had vented their spleen, on paper or otherwise, and spent themselves expansively on my misadventure, and climaxed. But the monkey has stayed with me ever since.
But I needn’t bother now. The world has changed, is changing – fast – and the Right to Information (RTI) as a buzzword has, still is, gaining momentum. Civil society, then non-existent under the onslaught of relentless governance issues, has become eagle-eyed and scam after scams have come to light with indecent monotony. Things can no more be swept under the carpet.
Yet to suppose that the move towards transparency will play out without hiccups and roadblocks is asking for the moon. There will be intense pressure to water down punitive legislations to punish the corrupt. The signs are already out there in the open – with the parliamentary standing committee first including then excluding the Group C employees from the Lokpal’s oversight.
The nation has perhaps reached the tipping point. The general public today is incensed and livid. It is now or never for India to awake, phoenix-like. This isn’t a clarion call; this is a fervent appeal from one proud Indian to other proud citizens to live an honest and dignified life amid this encircling and unending vista of scams — and swindle of public money.
Am I a cosmic optimist to will the civil society to galvanize the nation in its quest for honesty? Or, am I malicious in my thinking to say that it will willy-nilly lead them the one way they know till now — to resigned exasperation, as in the past? Nothing, nothing perhaps, exemplifies our times better than a cartoon where a son tells his father: “Dad, I’m considering a career in organized crime.” Unfazed, the father asks, “Government or private sector?”
Isn’t it time to give the cartoon’s pun a decent burial! Like Greek tragedy, time is deliciously ripe for nemesis to catch up with these scamsters’ hubris. Yikes.