Applications of Smart Contracts in Public Procurement in India

What is a Smart Contract?

Smart contract is a process to facilitate digital and automatic performance of a contract. In a smart contract, the contractual clauses may become partially or fully self-executing. The contracts may, therefore, become capable of self-verifying its various conditions and executing these themselves e.g. release of payment to the vendor on fulfillment of contractual obligation without any third-party intervention.

Background of Public Procurement Scenario in India

The public procurement process in India is quite complex given the federal framework for public service delivery. In the absence of comprehensive procurement law, General Financial Rules (GFRs) both in their Central and the state versions have been followed in India for a long time. These were followed by an era of eProcurement namely the opening of CPPP and NIC portals. However, with the advent of GeM (Government eMarketplace) the Public Procurement scenario has been undergoing drastic changes over the last few years. For the first time, supplier qualification can now be done automatically through MCA21, Aadhar and PAN Nos of the participating firms. GeM is, therefore, changing the landscape of Public Procurement rapidly at a pace never seen before.

Applications of Smart Contracts in Public Procurement in India

This rapidly changing scenario is just the kind of background required for the advent of the applications of Smart Contracts in the country. Once used widely, Smart Contracts can provide the ultimate solution to the bureaucratic bottlenecks which plague Management of public procurements Contracts. They can also help achieve cost savings and efficiency gains to the advantage of both government, suppliers and ultimately the citizen within the context of Indian public procurement. A possible use of smart contracts is also in the context of framework agreements. It is, therefore, a matter of time before various Govt. run eProcurement Portals and Public Sectors Entities in India start enabling their sites with smart contracts.

Challenges and Future 

It is contended that smart contracts will do away with human intervention. In addition to general lack of knowledge, fear factor surrounding loss of jobs may probably explain some of the inhibitions in its acceptance at many organizations. This is totally unfounded as with minor skill enhancement, procurement professionals can be made hands-on with the usage of Smart Contracts. In addition, their usage can generate additional employment opportunities for code writers. As the saying goes,

Once a new technology rolls over you, if you’re not part of the steamroller, you’re part of the road.”

Stewart Brand, Writer