As GeM flourishes, it’s time to unlock its full potential
A well-designed data lake, a technology platform that allows implementing Artificial Intelligence-Machine Learning, a strong risk and fraud control policy, well-defined processes, a competent team, and partnerships with other agencies are needed
Since its launch in August 2016, the Government e-Marketplace (GeM) has grown into an unparalleled ecosystem for public procurement through its disruptive model connecting 65,000 buyer organisations to 5.9 million sellers. GeM offers over three million products and services, ranging from hand towels to complex power plant machinery, and on the services side, from hiring manpower to buying cloud services. Starting with about ₹6,200 crore as Gross Merchandise Value (GMV) in its operations in FY2017-18, it has grown at over 100% compounded annual growth rate and transformed legacy procurement systems. In FY2022-23, GeM is expected to achieve ₹1.8-2.0 lakh crore in GMV, becoming one of the leading e-marketplaces in India, along with Flipkart and Amazon India.
There are three important things that GeM has done. The first is cost efficiency. While the purpose of this platform is to increase transparency, efficiency, and inclusivity for public procurement, GeM resulted in an estimated annual cost savings of about 10%. Studies from the World Bank, the National Economic Survey, those commissioned internally by GeM, as well as anecdotal evidence from buyers validate this. A World Bank study in 2020 estimated on average 9.75% cost savings via GeM and noted a significant increase in participation. Based on GeM transaction data, reverse auctions introduced on the platform — where sellers compete to obtain business from buyers and prices typically dip as sellers underbid each other — achieved a price reduction of about 26% in comparison to the reference price published by the bidders.
The second is its expanded reach. GeM has led to a multi-fold increase in reach, inclusivity, and participation. More than 50% of GMV on GeM is constituted by micro, small and medium enterprise (MSME) sellers. In FY2021-22, 53% of GMV was generated through interstate consignments, by making it easier for small and local suppliers to access demand. Based on sample data, 92% of transactions got three bids or more on GeM, vs. 71% outside it.
The third is the cost of doing business (CoDB) with the government, which has decreased. A survey of 4,500 sellers and buyers showed that travel, paperwork, printing or courier expenses were reduced. Multiple online payment modes, penal interest on delayed payments, and active monitoring improved the timelines for payment to sellers. The launch of GeM Sahay made it easier for underserved MSMEs to access easier working capital credit.
GeM can bring about change in how public procurement is perceived by stakeholders. India is still ranked 85 on the Corruption Perceptions Index 2022 by Transparency International, indicating massive improvement potential in this dimension. Globally, public procurement has been known to be vulnerable to buyer-seller bid rigging, coordinated bidding by sellers, irregular specifications, embezzlement, influence peddling, bribery, and fraud, among other issues. Due to its faceless nature, GeM can be the most reliable solution to the problem of corruption in procurement.
This is just a start. Every step taken on the GeM portal creates a data trail that can be used to identify questionable transactions. While data visibility is itself potent enough to discourage unethical motives, GeM has started testing use cases to leverage Artificial Intelligence (AI), and Machine Learning (ML) to identify, prevent and act against unscrupulous behaviour.
Building a robust fraud control system is not just about leveraging advanced analytics but also building technology systems, policies, processes, and specialised teams. KONEPS, South Korea’s public procurement portal, for example, leverages automated detection systems for suspicious bid strategies. These are validated by internal investigation teams, and selectively shared with the fair-trade commission for corrective actions. E-commerce platforms, including Amazon and Flipkart, also have AI-ML-based quality checks, and often large teams to investigate questionable transactions and catalogue anomalies.
A well-designed data lake, a technology platform that allows implementing AI-ML, a strong risk and fraud control policy, well-defined processes, a competent team, and partnerships with other agencies are needed for GeM to unlock its potential and enable efficient, transparent, and inclusive procurement. It can go a long way in catalysing clean governance in India.
Ashish Garg is managing director and senior partner, BCG and Ankush Wadhera is managing director and partner, BCG India
The views expressed are personal