Sustainable Public Procurement in India: End of Year Round-up and into 2018

Well! 2017 is coming to an end and what a momentous year it has been for Sustainable Public Procurement (SPP) in India! We took a big leap forward by making enabling provisions on sustainable procurement in the newly released Manual for Procurement of Goods, 2017. Addressing one of the biggest hurdles in the path of embedding sustainability concerns in purchasing decision, this is indeed a historic occasion for global SPP community. India, as one of the fastest growing economies in the world, has chosen to leverage ‘power of the purse’ to change the landscape of manufacturing and raise the profile of public sectors in the eyes of stakeholders. I am sure resonance of this step would be heard soon in the South Asia region as more countries follow in the foot-step of India.

India also witnessed huge efforts towards capacity building and training of stakeholders on SPP. Nationals Institute of Financial Management (NIFM) has included this topic in their Advanced Public Procurement course. I came to know that there was some opposition from the old guard on this inclusion, but the course director prevailed. National Academy of Indian Railways (NAIR) organised a talk on this topic. I also found this topic included in the Department of Personnel and Training (DoPT) sponsored In-Service Training Programme on ‘Public Procurement’ for All India Services officers of Government of India. Indian Railways Institute for Logistics and Materials Management (IRILMM) organised a highly successful one day workshop on sustainable procurement for public procurers from Indian Railways, PSUs, and Multilateral organisations. UNDP organised two days workshop on sustainable health procurement for their stakeholders. TERI University has included this topic in the course curriculum of their master programme. For the first time, I have witnessed the unfolding of one positive event after another on SPP and this was nothing short of amazing.

This said, as per a recent survey by Bain & Company, one of the biggest reasons why a new initiative fails is that often leadership overlooks the difficulties frontline employees confront while implementing new approaches. The truth is, most of the procurement professionals are not aware of provisions in the Manual. Those who are aware, want to know what makes a product greener and how it can be purchased within the legal and regulatory public procurement framework. Therefore, expecting them to adopt provisions of the Manual into actual practices on their own is a tall order. Only when you begin conversations with people, who are willing to jump on SPP bandwagon, you discover a genuine case for building an ecosystem to mitigate their risks of failure. It is very much our responsibility and in our interest to reach out to frontline procurement professionals, listen to their stories, understand their pain points and address their concerns.

Since the procurement system in India is decentralized, many may advocate that the sustainable procurement strategy needs to be a bottom-up strategy and that it should be left to individual ministries and PSUs to take forward their baton in their own way.  Do a reality check and you will soon realise that implementing SPP policy on ground level is not as easy as it may appear. A ministry or a PSU currently does not have the requisite capacity to take a decision on prioritization of products, harmonization of the specification for the prioritized products and services, corresponding voluntary standards/labels for confirming SPP criteria, coordination with multiple stakeholders, monitoring and evaluation etc. In this current scenario, I don’t see bottom-up approach for mainstreaming sustainability in procurement decision bearing fruit in India.  

Even if some of them take control of SPP implementation and do it, it would at best be a piecemeal implementation by few units — without harmonization of approach, leading to duplication of works and an increase in the cost of implementation. Also, sporadic public tenders for products with varying sustainability criteria/specification coming from different ministries may defeat the hard earned and heartening progress attained this year in SPP. The market would not make an investment in design and development of new sustainable products in response to such varying public tenders. It is only when all ministries and PSUs work in tandem, it would send a much clearer signal to suppliers and give them the economy of scale to invest and prosper. Unleashing the full potential of SPP would enable India to take giant steps towards meeting its SDG goals and for this a common framework that serves as a guide to ministries/PSUs is imperative.

Formation of a multistakeholder ‘Sustainable Procurement Task Force’ would be the first step in the right direction. The Task Force could be mandated to provide a small list of prioritised product categories, their specification, means of compliance to specification and harmonized evaluation tools to procurers spread across India. This list could be enlarged subsequently in a phased manner based on prioritisation study. While these steps are challenging, the effort and energy required to put them in place will be amply rewarded if the government is able to shift even a small fraction of its production and consumption on a sustainable path.

Convincing government to set up such a Task Force would be the biggest task in 2018 if we are to continue on the same positive path. This seems the only plausible way Government can transform this policy from the mere promotion of green technologies and eco-efficient products to a key instrument for the economic development and competitiveness of Indian industries. It is my heartfelt wish that a public announcement with quantitative targets for SPP implementation is anounced from the North Block in 2018. This will beam the message across the world that Indian means business; that we are not merely mouthing platitudes and big words, but are actually rolling up our sleeves and getting ready to become world leaders in meeting sustainability goals. A bold public commitment would create a shared sense of vision throughout Indian organisations and help them stay the course during difficult times. Wonder if Santa would grant my wish this Christmas?

As I said, coming up with a manual is a huge huge step in the right direction. But this is not the time to be complacent. The time is ripe for making further inroads. Yes, there are challenges; it would be interesting to see how the government navigates these challenges. Of course, the government has competing priorities - no one denies that. But after taking the first step and making enabling provisions in the Manual, making an all-out assault on these challenges is the only way to stay committed on this policy and move forward. Unless the government gets really deep into implementing SPP on the ground, I am afraid, provisions of the Manual would remain a passing reference for discussion in conferences and workshops. This will also be a litmus test for leadership, and show the world that we can walk the talk on Paris Climate Change commitment and SDGs.

Fellow SPP advocates please note – no resting untill we succeed! The resolution for New Year 2018 should be etched in stone – How can we help the government in mainstreaming provisions of the new Manual in actual procurement practices? On this optimistic note, wishing you Merry Christmas and a Happy New Year 2018!

Energizing innovation in green manufacturing

(As published in Business Standard, New Dehi, India on 24th September 2017)

Demand driven innovation has been a key success factor for many industries in US and Japan, especially in defense R&D programme, in which well-articulated demand was key to developing and diffusing technologies. Also, companies are willing to invest, innovate and scale-up when demand is secure and well directed.

In USA, the domestic market for green electronics products took huge strides after the Federal Government’s Executive Order on the purchase of greener products in early 1990s. Similarly in Europe, public procurement acted as a catalyst in developing market for organic food and drink, fuel-efficient vehicles, and sustainable buildings and timber products.

Typically, a government spends about 12-30% of national GDP on procuring products, services and works, thereby creating significant financial clout for itself in the market. It is not only the biggest institutional consumer, but also regulates and influences allocation of resources by demanding sustainable products and services. Governments, especially in the developed economies, have leveraged this combination of purchasing and regulatory power to shift investments towards the manufacture of innovative low-carbon products. There is no reason why India can’t travel the same path.

In today’s interconnected world, consumers are savvy and sensitive to environment and health hazard of products. Several studies have concluded that despite high unemployment rates and low wages post 2008, millennials in European countries are willing to spend more for environment-friendly products. The European Commission estimated the rapidly growing global market for low carbon environmental goods and services at €4.2 trillion in 2012. Indian businesses can either seize the opportunity and capitalize on this trend by internalizing sustainability in their value chain, or face the danger of becoming obsolete in the modern consumer-driven market.

The objective of “Make In India” initiative to transform India into a global manufacturing hub would not succeed unless our businesses adopt the new competitive mantra of reducing carbon emissions as well as materials and energy usage over the whole life-cycle of products. Businesses, by adopting this ‘low carbon manufacturing’ philosophy, have transformed their manufacturing and been reaping the benefits of consumers’ willingness to pay premium for sustainable products. This leads us to the question – how can we transform Make in India initiative to “low-carbon manufacturing” initiative?

In May 2017, Government of India (GoI) took a small step in this direction by releasing the Manual for Procurement of Goods 2017, which has made key changes to facilitate procurement of sustainable products by public sector.

The Manual has broadened the “Value for Money” concept and brought out contemporary concepts of “Total Cost of Ownership” and “Life Cycle Cost” to take into account, not only the initial acquisition price, but also cost of operation, maintenance and disposal during lifetime of products and services. Further, it has allowed incorporation of environmental characteristics besides quality, price, technical merit, aesthetic and functional characteristics in procurement cycle – from specification, to bid evaluation and contract monitoring. Embracing these changes, public procurers would create steady demand for greener products, thereby decoupling both resource requirement and environmental impacts from GDP growth.

The implications of this step are mind-boggling when one considers the scale of government procurement in India, which is about 30 percent of GDP. Considering Indian GDP is about $2.3 trillion, the government has, in a bid to incentivize the market for innovation in design, development and manufacturing of sustainable products, created a market of about $700 billion for such products, works and services. In addition to challenging traditional manufacturers to improve their efficiency, it will also force them to innovate continuously to retain market competitiveness.

This tweaking of purchase policy will attune our businesses to the new success paradigm and make them aspire to capture a small piece of the big €4.2 trillion cake. It would also help us achieve multiple SDGs, mitigate climate change, foster sustainable development, besides creating whole new market for voluntary sustainability standards and labeling. 

However, the Manual will remain unnoticed unless its provisions are embedded into procurement practices. To start with, the government can set up a Task Force to analyze their spend, identify hot-spots in procurement, bring out  comprehensive sustainable products procurement guidelines and action plan for prioritized products, and set up a monitoring and review mechanism. This would send a clear signal to the market that it means business.

The capacity building of stakeholders and preparing businesses (especially SMEs) for such transformation can progress simultaneously. Industry in China realized long ago that efficiency in energy usage, waste generation, and water consumption, along with using recycled materials, was vital for reducing costs and becoming competitive in the long run. Our policymakers must move aggressively if we are to unlock public procurement’s "power of the purse" to trigger innovation in low-carbon manufacturing. 

ISO 20400:2017 Sustainable Procurement –A Game Changer

Finally! The wait is over! For the past several weeks, the Communication Head of International Standard Organisation (ISO) has been handing out teasers such as “Sustainable Procurement one step closer to an ISO standard”, “First International Standard for Sustainable Procurement near publication” etc. As a result, various stakeholders were eagerly awaiting this standard whose time had indeed come. At last, on 21^st April, she announced, “You are what you buy – the first International Standard for sustainable procurement just published”.

For an idea that began its journey about a decade and half ago, having an ISO standard is a gigantic leap forward. I congratulate all those who were/are remotely connected with developing, nurturing, advocating and bringing forward sustainable procurement concept to this stage!

Procurement, as a tool to meet socio-environmental objectives of government and create value for business, has been on horizon for over a decade now. However, various related concepts such as green procurement, environmental friendly procurement, responsible procurement, eco-friendly procurement, circular procurement etc. have also come into play and are used interchangeably. While these phrases have similar connotation and all aim at leveraging institutional purchasing power, they have nonetheless created reasonable amount of confusion in the minds of stakeholders. With ISO naming its standard on Sustainable Procurement, I hope, the phrase ‘sustainable procurement’ would now find more acceptance among stakeholders conveying more nuanced approach towards embedding sustainability in buying decisions. This would bring much needed clarity to the conversations on sustainable procurement.

The Standard could not have come at a more opportune time as governments around the world are beginning conversations, strategizing and making blueprint for achieving SDG 12.7, which specifically deals with integrating sustainability in procurement decision. The publication of a standard would enable organisations in developing and emerging economies to fast-track sustainable procurement implementation and achieve SDG 12.7.

The choice of phrase used for this momentous announcement – “You are what you buy”, itself speaks a lot about this Standard. The stated aim of this ISO is to help interested organizations develop and implement sustainable purchasing practices and policies. It is quite important to note that one of the objectives of UN Environment led 10YFP Programme on Sustainable Public Procurement is also to support the implementation of SPP on the ground. Having a recognized international standard with same objective would surely give fillip to 10YFP Programme and help organisations, desirous of implementing sustainable procurement, move on a systematic guided path. This is an excellent prospect that can save an organisation’s resources that it would have normally spent on researching how to implement (and which type of) sustainable procurement. However, while using this ISO, one needs to keep in mind that it provides guidelines, not requirements. This essentially means that an organisation cannot claim that it is ‘ISO 20400 certified’. I learnt this interesting aspect from none other than Mr Josh Jacobs, the Chairman of US Mirror Committee on ISO. Therefore, watch out for consultants claiming to provide consultancy for ISO 20400 certification!

Going through ISO 20400, one gets the feeling that procurement professionals have given substantial inputs during its developmental process – inputs that have been considered and indeed incorporated. The Standard has thus put procurement professionals firmly in the driving role. It is organised exactly in a way an organisation would like to approach implementation of any new policy – with clear division of roles and responsibilities. A separate chapter has been devoted for strategic, operational and tactical issues each to be addressed by C-suite, middle management and individual procurers respectively in an organisation; for example – individual procurer responsible for actually integrating sustainability into procurement process can focus on Chapter 7 that deals with Procurement Process. This gives enough leeway to procurement professionals to focus on specific areas, where one has assigned roles. Similarly, at a strategic level, an organisation may have different rationale for adopting sustainable procurement. The Standard enlists several drivers for sustainable procurement and leaves it up to organisations to choose the most appropriate set of drivers that they deem most suited for establishing their own sustainable procurement programme. This in-built flexibility in the Standard would encourage organisations and professionals to tailor make their own strategy for adopting sustainability practices.

However, the best reason why I believe this Standard would prove to be a game changer is that it offers a level playing field to procurers all around the world. I have always maintained that one of the main hurdles to the implementation of a successful sustainable procurement plan in developing countries, such as India, is lack of awareness and know-how to integrate sustainability concerns in procurement process. The Standard brings this knowledge to everyone’s doorstep. No longer can a country/organisation hide behind excuses. The Standard lights up the path of C-suite leaders from any part of the world, and provides them with the wherewithal to develop a strategic vision of sustainable procurement that can capture the imagination of stakeholders. The middle management and individual procurer at the bottom can then translate this vision into actual implementation. I think this connect – among strategic leader, operational manager and tactical procurer – is fundamental for rapid uptake of this concept. It is precisely what this Standard visualises. The benefit of the Standard does not just stop here. It would come as a big relief to a whole lot of policy makers struggling to frame an appropriate policy on sustainable procurement framework. Now governments can issue one line directive, mandating organisations to implement ISO 20400 and then sit back – job done!