Procurement Practices of Indian Railways: A Comprehensive Case Study

This case study examines the procurement processes of Indian Railways, focusing on vendor selection methods, regulatory frameworks, and ethical considerations. It details the role of the Controller of Stores and the Railway Board in purchasing materials. The report analyzes vendor selection criteria, including technical and financial capabilities, as well as the role of the Research Designs and Standards Organization (RDSO) in evaluating vendors. It discusses procurement regulations, including the Indian Railway Financial Code and the Indian Contract Act 1872, and highlights the importance of supplier competition. Furthermore, the study emphasizes the role of the Central Vigilance Commission (CVC) in ensuring transparency, fairness, and accountability in the procurement process. The conclusion summarizes the systematic approach of Indian Railways procurement, promoting competition and ethical practices.

Running head: CASE STUDY ON INDIAN RAILWAYS
Case Study on Indian Railways
Name of the Student
Name of University
Author’s note

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CASE STUDY ON INDIAN RAILWAYS
Table of Contents
Introduction..........................................................................................................................2
Methodology of Selecting the Sources................................................................................2
Procurement Regulation and Oversight...............................................................................3
Supplier Competition...........................................................................................................4
Ethics and Accountability in the Process of Procurement...................................................4
Conclusion...........................................................................................................................5
References............................................................................................................................6

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Introduction
Indian Railway procurement means the purchasing of material for the railways. The
process of purchasing is generally based in the headquarters where there is the office of the
Controller of Stores. The purchasing can be done by administration directly or by the Board in
the Railway.
This report analyzes the case study on the procurement of Indian Railways and describes
certain points in details. It explains the methods of selecting sources, the competition, and ethics
in the procurement process. It also gives an overview of the regulations in the procurement
procedures.
Methodology of Selecting the Sources
Sources in terms of railways refer to the vendors who supply the equipments and
required resources to the railway departments. These sources must be analyzed and then selected
for the railway. Different country follows a different method for selecting the vendors. The
Russian railway company carries out a factor analysis which is a mathematical procedure.” In the
factor analysis, we obtained a set of indicators that determine the production and business
activities score of the vendor. This is done from the point of view of the consumer — Russian
railway company.”( Vikharev, 2013, p.20 ). The Indian Railway follows a particular procedure
for ensuring that the railway assets are working in a safe manner and are reliable in nature. The
Railway Board maintains a list of vendors, those who are approved by the Board. Another list is
also maintained that consists of the names of the agencies (Nag, 2013). The Board takes a
decision, on which item is to be maintained by which vendors. The manufacturing units along

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with certain zones also take part in maintaining the list of the vendors for those items that are not
mentioned by the Railway Board. The vendors register themselves online for enlisting their
names in the list of approved vendors. The Research Designs and Standards Organization carry
out a selection procedure in order to find out the most suitable vendor for the railways ( Nag,
2013). It checks the technical and financial capabilities along with the quality, infrastructure and
manufacturing capacity in order to select a vendor. The name of the vendor is enlisted in a list of
Part 2. These vendors provide 20 per cent of the supply for the first 15 months. After that the
vendors move to the main list where they become the permanent vendors (Gupta, Prakash &
Jadeja, 2015). Some vendors are even moved from or degraded from list 1 to list 2. This is a
dangerous scenario for the vendors because once they have degraded they do not have the scope
for promotion any more. The RDSO publishes the names of the approved vendors on the website
after every six months. The reason for degradation can be downfall in the quality of the supplied
materials and equipments. The source selection method is quite effective and efficient.
Procurement Regulation and Oversight
The government enacts several laws for regulating the methods of procurement. It is done
in order to get the best quality of goods at a minimum cost. The emergence of the Indian
Railways had taken place over 150 years ago. The government applies several methods for
improving the quality and for the optimization of the cost. Rules and regulations are
implemented for the proper working of any system. The most important rules that are applied in
the Indian Railway purchasing and procurement method is the Indian Railway Financial Code,
Indian railway Code for the Stores Department and the Indian Railway Code for the Accounts
Department (Khorana & Subramanian, 2012). These codes are the base or fundamental rules and
principles for procuring railway materials in a particular process. The management looks after

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the oversight of the procurement process. It helps to maintain the railway budget by taking care
of the expenditure and it also help does not allow any misuse of power or authority. The
procurement processes that take place in India are based on The Indian Contract Act 1872 and
the Sale of Goods Act 1930. According to the Sale of Goods Act 1930, “Section 12 of the Act
stipulates that a person is said to be of sound mind for the purpose of making a contract, if, at the
time when he makes it, he is capable of understanding it and of forming a rational judgment as to
its effect upon his interest.”(Narayan & Shikha, 2013, p. 9). This means that in order to
participate in the procurement process the suppliers must be of sound mind.
Supplier Competition
In the earlier time between the year of 1960 and 1990, the railways used to buy rails on
from SAIL. “The railways bought rails only from SAIL and since there were very few other
buyers for rails, the mill responded to fluctuations in orders from the railways by adjusting the
number of shifts devoted to producing structural.” (Das et al., 2013, p.12). Later on competitions
increased with the emergence of more suppliers. The system of registration of vendors includes
the process of forming cartels. This cartel formation restricts a number of vendors that are
approved. This leads to high level of competition in the market (Swarup et. al., 2012). The
vendors need to qualify in order to sell their products (Sundarraj & Kumari, 2013). The
qualification procedure promotes competition. A certain degree of competition is needed for
better performance of the industry.
Ethics and Accountability in the Process of Procurement
The CVC plays a major role in maintaining fairness, transparency, and quality and money
worth in the process of procurement. The main objectives of the public procurement process are

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accountability and efficiency. “A well-functioning and efficient public procurement system
addresses issues like inefficiency, corruption, and waste (Jones, 2007), and thus, it helps the
development process by improving the public administration.” (Hazarika & Jena, 2017, p.2). A
corrupt person will get very easily caught under the supervision of CVC. It maintains high
ethical values through extreme level of scrutiny. A decentralized method of procurement ensures
that a high level of quality is maintained.
Conclusion
This report concludes that the procurement process of the Indian Railways is a systematic
method and promotes fair level of competition. The CVV is responsible for carrying the
procedure in an ethical way. This report talks about the selection procedure and also certain
regulations that are needed for effective procurement and purchase for the railway department.

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References
Das, S., Krishna, K., Lychagin, S., & Somanathan, R. (2013). Back on the rails: competition and
productivity in state-owned industry. American Economic Journal: Applied
Economics, 5(1), 136-162.
Gupta, A., Prakash, G., & Jadeja, J. (2015). Supply Chain in the Public Procurement
Environment: Some Reflections from the Indian Railways. Procedia-Social and
Behavioral Sciences, 189, 292-302.
Hazarika, B., & Jena, P. R. (2017). Public Procurement in India: Assessment of Institutional
Mechanism, Challenges, and Reforms (No. 17/204).
Khorana, S., & Subramanian, S. (2012). Potential Accession to the WTO Government
Procurement Agreement: A Case-Study on India. Journal of International Economic
Law, 15(1), 287-309.
Nag, B. (2013). Combating Corruption in Public Procurement-A Case Study of the Indian
Railways.
Nag, B. (2013). Public Procurement-Case Study of the Indian Railways.
Narayan, C. L., & Shikha, D. (2013). Indian legal system and mental health. Indian journal of
psychiatry, 55(Suppl 2), S177.
Sundarraj, R. P., & Kumari, K. (2013). Electronic procurement systems in India: importance and
impact on supply chain operations. In Handbook of Global Logistics (pp. 27-43).
Springer New York.

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Swarup, M. M., Dwivedi, A., Sonkar, C., Prasad, R., Bag, M., & Singh, V. (2012). A QR code
based processing for dynamic and transparent seat allocation in Indian railway. IJCSI
International Journal of Computer Science Issues, 9(3).
Vikharev, S. (2013). Comparative vendor score.