{"id":54264,"date":"2025-09-16T20:08:01","date_gmt":"2025-09-16T14:38:01","guid":{"rendered":"https:\/\/www.nextias.com\/ca\/?p=54264"},"modified":"2025-09-17T12:34:01","modified_gmt":"2025-09-17T07:04:01","slug":"india-procurement-reforms","status":"publish","type":"post","link":"https:\/\/www.nextias.com\/ca\/editorial-analysis\/16-09-2025\/india-procurement-reforms","title":{"rendered":"Unlocking Innovation with India\u2019s Procurement Reforms"},"content":{"rendered":"\n<p><strong>Syllabus: GS3\/Economy<\/strong><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Context<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Procurement policies and frameworks in India, often designed with transparency and cost-efficiency, frequently killing innovation by prioritising procedural compliance over scientific needs.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>About Public Procurement System<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Public procurement is the process by which governments purchase goods and services, for governance and economic development.<\/li>\n\n\n\n<li>It represents around <strong>12% of GDP in OECD countries<\/strong> and <strong>up to 30% in some developing countries.<\/strong><\/li>\n\n\n\n<li>In India, it accounts for <strong>nearly 20\u201322% of GDP,<\/strong> making it a powerful lever for <strong>policy implementation, industrial growth, and innovation.<\/strong><\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Procurement\u2019s Evolutionary Arc<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Procurement has evolved from mere control to a tool of creativity and strategy, <strong>from ancient Egyptian records to AI-driven supply chains.<\/strong>\n<ul class=\"wp-block-list\">\n<li><strong>Industrial Revolution<\/strong>: Cost-centric approach.<\/li>\n\n\n\n<li><strong>World Wars<\/strong>: Strategic role in securing scarce resources.<\/li>\n\n\n\n<li><strong>Post-1945<\/strong>: Procurement became central to innovation in semiconductors, space, and renewable energy.<\/li>\n\n\n\n<li><strong>Modern Time: \u2018Cognitive procurement\u2019<\/strong> employs AI for predictive sourcing, scenario simulation, and compliance automation.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>India\u2019s Procurement Landscape<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Historically, India\u2019s procurement system was governed by the<strong> <strong>General Financial Rules (GFR), 2017<\/strong><\/strong> and managed through <strong>decentralized, paper-based processes.<\/strong>\n<ul class=\"wp-block-list\">\n<li>These rules introduced flexibility in procurement, allowing departments to experiment with new vendors and solutions.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li>They often lacked agility, excluded small players, and were vulnerable to inefficiencies and opacity, while these frameworks emphasized cost-efficiency and compliance.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Reforming the Procurement Framework<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Reforms in General Financial Rules (GFR): <\/strong>These mark a shift toward <strong>enabling research and development (R&amp;D)<\/strong> by granting exemptions from the Government e-Marketplace (GeM) portal and raising financial thresholds for R&amp;D procurement.<\/li>\n\n\n\n<li><a href=\"https:\/\/www.nextias.com\/ca\/current-affairs\/03-03-2025\/gem-impact-indian-economy\"><strong>Government e-Marketplace (GeM):<\/strong><\/a> It is a <strong>dynamic, paperless, and cashless online platform<\/strong> that enables government departments to procure goods and services efficiently.\n<ul class=\"wp-block-list\">\n<li>It offers real-time price comparison and reverse auctions; direct access to over 50,000 government buyers; and minimal human interface to reduce corruption;<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Public Procurement Policy for MSEs:<\/strong> The government mandates that 25% of annual procurement by central ministries and PSUs be sourced from MSEs, while these frameworks emphasize cost-efficiency and compliance. It includes:\n<ul class=\"wp-block-list\">\n<li>A 4% sub-target for SC\/ST entrepreneurs;<\/li>\n\n\n\n<li>Special provisions for women-owned enterprises;<\/li>\n\n\n\n<li>Exemptions from earnest money and tender fees;<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Startup India Procurement Reforms:<\/strong>\n<ul class=\"wp-block-list\">\n<li>Exempted DPIIT-recognized startups from prior experience and turnover requirements;<\/li>\n\n\n\n<li>Created the <strong>GeM Startup Runway<\/strong>, allowing startups to showcase unique products and services;<\/li>\n\n\n\n<li>Enabled registration on the <strong>Central Public Procurement Portal (CPPP)<\/strong> with relaxed norms;<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Vocal for Local:<\/strong> Creation of 210 ODOP product categories for listing unique products from each district in India.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Recent Steps Taken By Government<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Bypassing GeM for specialised equipment<\/strong>, reducing delays in scientific procurement.<\/li>\n\n\n\n<li><strong>Raising direct purchase limits<\/strong> from <strong>\u20b91 lakh to \u20b92 lakh,<\/strong> acknowledging bespoke research needs.<\/li>\n\n\n\n<li><strong>Delegating tender approvals up to \u20b9200 crore<\/strong> to institutional heads, eliminating bureaucratic lag.<\/li>\n\n\n\n<li>These measures align with the <strong>concept of \u2018catalytic procurement\u2019,<\/strong> where flexibility enables public institutions to act as early adopters of advanced technologies.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Impacts of Reforms in India\u2019s Public Procurement System<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Transparency and Accountability:<\/strong> Platforms like GeM and e-Procurement portals have digitized the entire process, reducing human discretion and corruption.\n<ul class=\"wp-block-list\">\n<li>A well-designed procurement law can yield significant fiscal and governance benefits, potentially saving up to 1.2% of GDP.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Catalyzing Innovation Through Strategic Procurement:<\/strong> Ministries are now encouraged to issue challenge-based tenders, inviting innovative solutions to complex issues like water purification, waste management, and digital governance.<\/li>\n\n\n\n<li><strong>Sectoral Impact:<\/strong> In sectors like <strong>Agriculture and Infrastructure<\/strong>, procurement reforms are making systems more farmer-centric and tech-driven.\n<ul class=\"wp-block-list\">\n<li>Initiatives such as <strong>farm-gate procurement<\/strong>,<strong> digitized monitoring, and timely payments<\/strong> are improving outcomes for producers while modernizing supply chains.<\/li>\n\n\n\n<li>The <strong>National Infrastructure Pipeline<\/strong> and <strong>asset monetization strategies<\/strong> are being supported by streamlined procurement processes that attract private investment and global expertise.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Selfhelp Groups (SHGs): GeM<\/strong> is collaborating with the <strong>Self-employed Women\u2019s Association (SEWA)<\/strong> to train, assist and enable 21 lakh+ women-led micro and small enterprises, women entrepreneurs and <strong>selfhelp groups (SHGs).<\/strong><\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Limitations of India\u2019s Public Procurement System Reforms<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Overemphasis on Lowest Cost:<\/strong> The traditional focus on L1 (lowest bidder) continues to dominate procurement decisions.\n<ul class=\"wp-block-list\">\n<li>It often<strong> sidelines quality, innovation, and lifecycle value <\/strong>\u2014 especially problematic when sourcing advanced technologies or services that require long-term performance.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Low Direct Purchase limit:<\/strong> The \u20b92 lakh direct purchase limit may still be <strong>inadequate<\/strong> <strong>for high-cost fields<\/strong> like biotechnology and quantum computing.<\/li>\n\n\n\n<li><strong>Overemphasis On Global Tenders:<\/strong> It may sideline domestic suppliers unless local R&amp;D ecosystems are strengthened.<\/li>\n\n\n\n<li><strong>Limited Support for Innovation:<\/strong> Many innovative firms still struggle with procedural hurdles, lack of awareness, and limited capacity to navigate complex tender documentation.\n<ul class=\"wp-block-list\">\n<li>It remains risk-averse, favoring established vendors over disruptive solutions.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Fragmented Implementation Across States:<\/strong> Procurement reforms are <strong>unevenly adopted across states and local bodies<\/strong>.\n<ul class=\"wp-block-list\">\n<li>Smaller municipalities and rural departments often <strong>lack the digital infrastructure, training, or incentives<\/strong> to fully embrace e-procurement platforms, leading to inconsistent outcomes.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Global Models of Innovation-Oriented Procurement<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Germany\u2019s High-Tech Strategy<\/strong>: Embeds innovation into procurement through dedicated advisory bodies like KOINNO.<\/li>\n\n\n\n<li><strong>US Small Business Innovation Research (SBIR)<\/strong>: Reserves a share of R&amp;D funds for startups, using phased procurement to de-risk early-stage technologies.\n<ul class=\"wp-block-list\">\n<li>The<strong> US model of performance-based private management<\/strong> illustrates how hybrid systems can balance public oversight with corporate agility.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>South Korea\u2019s Pre-Commercial Procurement<\/strong>: Pays premium prices for prototypes aligned with ambitious national goals.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Way Forward: Toward Transformative Procurement in India<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>For India to unlock procurement\u2019s full potential, <strong>four systemic shifts are essential:<\/strong>\n<ul class=\"wp-block-list\">\n<li><strong>Outcome-Weighted Tenders<\/strong> \u2013 evaluating bids on qualitative factors like R&amp;D investment, not just cost.<\/li>\n\n\n\n<li><strong>Sandbox Exemptions<\/strong> \u2013 allowing premier institutes partial freedom from GFR, tied to innovation targets.<\/li>\n\n\n\n<li><strong>AI-Augmented Sourcing<\/strong> \u2013 deploying cognitive procurement assistants for faster, smarter decision-making.<\/li>\n\n\n\n<li><strong>Co-Procurement Alliances<\/strong> \u2013 pooling demand across labs for high-cost equipment.<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li>India\u2019s <strong>Council of Scientific and Industrial Research (CSIR)<\/strong> could adopt a similar framework for strategic labs, provided strong accountability structures are in place.<\/li>\n<\/ul>\n\n\n\n<figure class=\"wp-block-table\"><table class=\"has-background\" style=\"background-color:#fff2cc\"><tbody><tr><td><strong>Daily Mains Practice Question<\/strong><br><strong>[Q]<\/strong> Discuss how India\u2019s procurement reforms have shifted the focus from procedural compliance to innovation. What are the remaining challenges in unlocking innovation through public procurement?<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p><a href=\"https:\/\/www.thehindu.com\/opinion\/lead\/unlocking-innovation-with-indias-procurement-reforms\/article70052698.ece\" rel=\"nofollow noopener\" target=\"_blank\">Source: TH<\/a><\/p>\n\n\n\n<div class=\"wp-block-buttons is-layout-flex wp-block-buttons-is-layout-flex\">\n<div class=\"wp-block-button\"><a class=\"wp-block-button__link wp-element-button\" href=\"https:\/\/www.nextias.com\/ca\/wp-content\/uploads\/2025\/09\/UPSC-Editorial-Analysis-16-September-2025.PDF.pdf\">Download PDF<\/a><\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>Procurement policies and frameworks in India, often designed with transparency and cost-efficiency, frequently killing innovation by prioritising procedural compliance over scientific needs.<\/p>\n","protected":false},"author":15,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[22],"tags":[],"class_list":["post-54264","post","type-post","status-publish","format-standard","hentry","category-editorial-analysis"],"acf":[],"jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/54264","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/users\/15"}],"replies":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/comments?post=54264"}],"version-history":[{"count":3,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/54264\/revisions"}],"predecessor-version":[{"id":54319,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/54264\/revisions\/54319"}],"wp:attachment":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/media?parent=54264"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/categories?post=54264"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/tags?post=54264"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}