Public procurement in India, which accounts for nearly 25 per cent of the country’s GDP or about ₹60 lakh crore, remains one of the largest untapped opportunities for fostering innovation and startup growth, according to a senior government official.
Subramaniam K, Director General, Comptroller and Auditor General of India (CAG) said between ₹90,000 crore and ₹2 lakh crore of this market could be channelled towards supporting new technologies and startups if reforms are implemented effectively.
“Unless we sort out these procurement issues, it will be difficult for India to achieve its ambition of becoming a seven trillion-dollar economy by 2030,” he said at a roundtable hosted by industry body IndiaTech.org in New Delhi.
Subramanian noted that despite its potential, the system is weighed down by long-standing practices that discourage innovation. Public agencies, he said, often fall back on the “safest option” of picking the lowest bidder.
“For many decision-makers, the safest option was always to buy at the lowest price,” he said. “But this approach neglected quality. Reverse auctions and repeated iterations often squeezed margins to unsustainable levels.”
He explained that this stems from the traditional L1 system, or the “lowest-cost, technically acceptable” method, which reduces complex technical evaluations to price comparisons. “Once you set minimum specifications, any bidder who barely passes is treated the same as one who scores much higher. The system does not allow for trade-offs between quality and price,” he said.
According to him, the problem is compounded by over-engineered tender documents and repeated re-tendering. He cited the example of a tender for a boat to carry 35 personnel for eight to ten hours, which expanded into a 60-page technical document. “Vendors struggle to respond, and many do not even attempt to read such documents,” he said.
Public procurement reforms
Subramanian said reforms introduced in 2022 were aimed at addressing these challenges. The Quality-Cum-Cost-Based Selection (QCDS) method, previously limited to consultancy services, was expanded to IT services and works. This method allows technical quality to be considered alongside cost.
He also pointed to the adoption of hybrid approaches such as the Swiss Challenge model, where an unsolicited proposal is opened for counter-bids, and justified single-source contracts. These, he said, are gaining ground as alternatives to repeated open bidding.
“Procurement manuals must be continuously reviewed, updated and adapted to what is working on the ground,” he said, adding that working groups have been formed to engage with both industry and government departments to identify bottlenecks.
Subramanian said procurement reform could be transformative for startups and smaller firms, which face uncertainty in securing government orders. He highlighted the ASSURED framework, which stands for Availability, Scalability, Sustainability, Usability, Reliability, Excellence and Development. The framework provides certification, funding and market assurance for new technologies.
“ASSURED gives confidence to funders that an idea is worth backing, to industry that it is viable to produce, and to the market that it is reliable and scalable,” he said.
He cited Maruti’s localisation of windscreens in the 1980s, which led to the establishment of Asahi India Glass, as an example of pragmatic procurement. “Decisions were credible, pragmatic and not unnecessarily questioned,” he recalled.
As a more recent example, he mentioned a hydropower facility that experimented with robotic automation for turbine hard-coating, which cut costs and downtime but faced scrutiny for allegedly favouring a vendor. “Should priority be given to process or to outcome? While the process was questioned, the outcome was demonstrably better,” he said.
Trust in the procurement system
Subramanian also said procurement decisions continue to emphasise upfront costs, despite long-term maintenance and integration expenses sometimes being five to eight times higher. “The concept of whole-life costing is slowly gaining ground, but it is not yet widely implemented,” he observed.
He added that collaboration between government and industry would be essential in tackling issues such as modular versus bundled procurement, vendor selection and system integration. Proposals for “safe harbour” provisions to protect officials and vendors who follow due process are also being discussed, he said, as a way to encourage participation from innovators and SMEs.
On vendor assurance, Subramanian said platforms such as the Government e-Marketplace currently provide basic credentials but additional safeguards, including technical audits, ethical checks and independent validation, would be needed to build confidence in the system.
Subramanian reiterated that unless procurement processes are reformed, India may struggle to realise its economic ambitions. “Unless we sort out these procurement issues, it will be difficult for India to achieve its ambition of becoming a seven trillion-dollar economy by 2030,” he said.
