India has spent the past decade building funds, grants, incubators and policy support for startups. Yet government procurement for startups remains a relatively small part of the public purchasing system. In FY26, the Government e-Marketplace recorded ₹5.03 lakh crore in transactions, while startups accounted for just over ₹19,000 crore, or less than 4% of the total.
Funding Innovation Is Only One Part of the Equation
The gap becomes clearer when startup procurement is compared with micro and small enterprises. MSEs accounted for ₹2.36 lakh crore, or 47.1% of GeM's FY26 gross merchandise value. Government procurement policy requires central ministries, departments and public sector enterprises to source at least 25% of annual procurement from MSEs. In 2024-25, procurement from MSEs reached ₹93,017 crore, or 43.58%.
Recognised startups, meanwhile, receive exemptions from requirements such as earnest money deposits and certain prior turnover or experience conditions. But the procurement framework does not create an equivalent purchasing target for government buyers.
A parliamentary committee had earlier noted that only about 10% of DPIIT-recognised startups had transacted on GeM, with business worth ₹14,000 crore recorded across eight financial years. It recommended periodic reviews and more transparent procurement data.
From Grants to Government Customers
Recent initiatives indicate growing recognition of the demand-side challenge. MC²+ Ignite, launched at IIT Madras in August 2026, plans to support around 30 energy-focused deep-tech startups with milestone-linked funding of up to ₹2 crore, while providing access to pilot sites and industry infrastructure.
India has also introduced a dedicated Deep Tech Startup category. Under the revised 2026 framework, eligible deep-tech companies can retain startup recognition for up to 20 years, with a turnover ceiling of ₹300 crore, reflecting their longer development cycles.
The broader policy question is whether funding and recognition can be complemented by predictable government demand.
Why Procurement Can Matter More Than Another Grant
For technology companies developing products for defence, energy, healthcare, infrastructure or climate applications, securing an initial government customer can provide revenue, validation and a reference deployment.
One proposal emerging from this debate is a 1% startup procurement target on central purchasing. Based on FY26 GeM volumes, that would represent roughly ₹5,000 crore in annual demand.
Other suggested measures include allowing successful government-funded pilots to transition into procurement, creating contract terms suited to first-of-a-kind technologies, and publishing ministry- and PSU-level startup procurement data.
The central issue is therefore shifting from how India can help startups build products to how public institutions can create pathways for those products to reach the market.
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