The success of start-ups hinges on two factors: capital and markets. Despite the rapid strides made in the last decade, market access remains a challenge for start-ups.
Public procurement, which accounts for about 25 per cent of India’s GDP, can be a game-changer in addressing this gap. Indeed, the government has made efforts to procure from start-ups via the Government eMarketplace (GeM). Exemptions on criteria such as prior experience and Earnest Money Deposits (EMD) have eased access for start-ups. But we are far from exploring the full potential of start-ups in government contracts.
GeM’s startup runway has facilitated orders worth ₹11,865 crore as of March 2023, yet this covers only 12 per cent of DPIIT-registered start-ups and 6 per cent of total public procurement. By improving ease of doing business with the government, India can significantly enhance start-up participation in public procurement.
An Economic Multiplier
Government contracts provide start-ups validation, drive scaling, create jobs and offer stable revenue. They also offset reliance on volatile venture capital.
Start-ups offer innovative, cost-effective solutions that enhance public services. The Commerce and Industry Ministry’s recent move to ease procurement norms for new products exemplifies this potential.
Several global initiatives highlight the benefits of start-up procurement. The US Small Business Innovation Research (SBIR) programme, Israel’s ‘Buy for Israel’ policy prioritises domestic start-ups, Australia’s Startup Procurement Initiative and EU’s initiatives can serve as templates.
India has seen success with targeted procurement programmes. The iDEX initiative under the Defence Ministry grants up to ₹25 crore for start-ups to develop products adopted by the armed forces.
Maharashtra Start-up Week offers contracts of at least ₹15 lakh to winning start-ups, bypassing the traditional tendering process. Mumbai’s SMILE Council supports civic-tech start-ups with guaranteed contracts for deployment-ready solutions.
The Andhra Pradesh government announced Preferential Market Access initiative enabling direct procurement up to ₹50 lakh exclusively for DPIIT start-ups registered in AP. Scaling these models nationwide is necessary for a more significant economic impact.
Three models
Three models could prioritise start-up procurement in India, and thereby can amplify the returns of government investments in them:
Open Procurement: Government-supported incubators (450 across India) could assist start-ups in registering on GeM, increasing their visibility to public agencies.
Challenge-Based Procurement: Similar to iDEX and Maharashtra Startup Week, government departments could issue innovation challenges, guaranteeing limited procurement contracts for the winning start-ups.
Direct Procurement Mandate: Similar to the 25 per cent MSME procurement mandate for central ministries, a start-up procurement quota could be introduced, adjusted sector-wise based on ecosystem maturity.
Even after such measures, the policymakers will still need to streamline policy to create a dynamic public procurement ecosystem where startups have a clear pathway to market.
To truly realise the potential of start-ups in public procurement, India must move beyond pilot programmes. For example, the Sectoral Launchpad programme under Atal Innovation Mission 2.0 is a step in this direction, facilitating start-up integration into key industries.
Vaishnav is Former Mission Director and Non-Resident Fellow, Atal Innovation Mission, NITI Aayog, ; Bhatt is Startup Advisor, Former CEO, SINE-IIT Bombay; and Sheikh is Innovation Lead, Atal Innovation Mission, NITI Aayog
