Top central ministries are discussing a proposal that may mandate public sector units to purchase 10% of their requirements from startups, two people aware of the development said.
Ministries of commerce, labour, pharmaceuticals, chemicals, heavy industry, steel, MSME and textiles are part of these discussions, the people cited above said on the condition of anonymity.
“The intent is to help India’s startup sector grow, and make India an attractive place for them,” one of the two officials said.
Some of India’s ongoing efforts to encourage startups sector include the Startup India seed fund initiative and Atal Innovation Mission.
According to the second official, mandatory public procurement from startups is one of several options under discussion. The official said this could be similar to how the Union government encourages defence startups through its Innovations for Defence Excellence (iDEX) framework, which funds and supports startups to drive innovation in defence. The scheme’s aim is to foster innovation and technology development in Defence and Aerospace by engaging Industries.
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The idea of compulsory procurements was pitched by a group of secretaries during mid-2024, the second official said. Its other suggestions included scaling up research and innovation for startups.
Queries sent to the Press Information Bureau, the central government’s media department, remained unanswered.
The government’s budgeted expenditure for FY25 is ₹48 trillion, about 8.5% higher than the actual expenditure in FY24.
Reservation for startups is a positive step to foster entrepreneurship, said Rahul Garg, co-founder and CEO of Moglix, an industrial B2B manufacturing startup, which was last valued at more than $2.6 billion. “By granting startups access to government contracts, this policy empowers them to scale, create jobs, and drive economic growth. This initiative not only provides a platform for startups to showcase innovative solutions but also accelerates the development of cutting-edge technologies that can enhance India’s global competitiveness,” Garg said.
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Supporting startups could help create jobs for hundreds of thousands of India’s youth, at a time of rising unemployment. The government’s latest periodic labour force survey shows the unemployment rate inching up to 3.2% between July 2023 and June 2024 from 3.1% the previous year.
Meanwhile, India’s startups created around one million jobs till 2023, the Economic Survey 2023 (23, it is) showed.
According to a Confederation of Indian Industry (CII) report, startups will likely create 50 million new jobs and add $1 trillion to the economy by FY30.
“This is a terrific and positive shift in procurement thinking if it goes through,” said Pranav Pai, managing partner at 3one4 Capital, a homegrown venture capital firm. “The largest economies like the US and China built their Indigenous manufacturing and technological competencies by channelling hundreds of billions of dollars into research, grants, and procurement support programmes such as DARPA and SASTIND. If India is able to replicate such initiatives programmatically, this can lead to a seismic transformation of Indian competencies – from energy and defence to chemicals and software – over the next decade,” Pai added.
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India is home to the world’s third-largest flock of unicorns–startups valued at one billion dollars and above–behind the US and China. According to the Hurun Index, between 2014 and 2023, India saw a boom in startup founding and funding.
The number of tech startups in India is estimated at around 122,000. India’s startups attracted $9.2 billion in funding across 984 deals between January-October 2024, according to data compiled by GlobalData, an analytics firm. This was up from $6.4 billion mopped up by these startups in the same period in 2023 across 930 deals, data showed.
