India’s public procurement landscape has witnessed significant developments in recent years, reflecting its global ambitions, bolstered by increased economic activity, the expansion of public infrastructure, an enabling regulatory framework, and a stable government at the Centre, all of which emphasise domestic capacity building. Publicly available information indicates that India’s public procurement now accounts for approximately 24% of its gross domestic product, which is expected to rise given the government’s focus on enhancing private sector participation in infrastructure and social development. The policy-making over the past decade has demonstrated an encouraging trend toward creating an ecosystem in which private entities can transact with the government, its agencies or public sector undertakings, with reduced bureaucracy and regulatory barriers.

The recurring theme, however, at the core of India’s public procurement policy-making has been the focus on indigenisation of procurement and domestic capacity building. Initiatives such as “Make in India” – the government’s flagship indigenisation programme – have created a paradigm shift, resulting in the creation of manufacturing, technology and service capabilities across various sectors. In an economy like India, which has relied significantly on foreign technology or foreign bidders for specialised procurement in sectors such as defence, medical equipment, specialised chemicals, etc, the “Make in India” initiative has greatly benefited domestic entities, including medium, small and micro enterprises.

The recent global geopolitical unrest is expected to significantly influence the public procurement framework in critical sectors, including national security, energy security, and strategic industries, necessitating adaptive policies and risk management strategies. These factors have also impacted the economic decision-making of governments across the world, making them increasingly susceptible to supply chain disruptions, trade disruptions, logistical and transportation challenges, sanctions, tariff hikes and other regulatory and political barriers. India’s procurement framework is adapting to address the evolving nature of challenges by balancing approaches of “protectionism” and “free trade policy”. The recent free trade agreements executed by India with the United States, New Zealand, the European Union, the United Kingdom and Australia reflect this balance between expanding its supplier base by encouraging foreign participation and incentivising domestic capabilities by creating an international market for domestic manufacturers.

Recent Trends and Developments

Make in India – the flagship indigenisation programme

Originally introduced in 2014, the “Make in India” initiative has been envisioned to transform India into a manufacturing hub by incentivising India’s production capabilities across 25 identified sectors. The re-imagined “Make in India 2.0” initiative now focuses on 27 sectors (including service sectors):

• manufacturing sectors include aerospace and defence, pharmaceuticals, shipping, railways, construction and new and renewable energy; and
• service sectors include information technology and information technology-enabled services, tourism and hospitality services, transport and logistics services.

The Department for Promotion of Industry and Internal Trade (“DPIIT”) and the Department of Commerce (“DOC”) have been designated as the implementation agencies for the manufacturing sector and service sector, respectively, under the “Make in India” initiative. Both these departments operate under the aegis of the Ministry of Commerce and Industry, Government of India and are empowered to issue executive instructions for implementing the “Make in India 2.0” programme.

Local content requirement – the indigenisation test

The DPIIT issued the Public Procurement (Preference to Make in India) Order of 2017, which has subsequently been revised, with the latest revision effective on 19 July 2024 (“Public Procurement Order”). The Public Procurement Order was issued as a framework guideline to promote manufacturing and production of goods and services in India under the “Make in India” initiative and is applicable to all ministries or departments, subordinate offices and autonomous bodies controlled by the Government of India (“GoI”) and includes government companies as defined in the Companies Act of 2013.

The genesis of the “local content” requirement is in the Public Procurement Order and it applies to various categories of suppliers and service providers prescribed therein. The Public Procurement Order defines “local content” to mean “the amount of value added in India which shall, unless otherwise prescribed by the Nodal Ministry, be the total value of the item procured (excluding net domestic indirect taxes) minus the value of imported content on the item (including all custom duties) as a proportion of the total value, in percent.” The procuring authorities are therefore required to adopt or follow the local content requirements provided in the Public Procurement Order or those prescribed by the respective ministries or departments.

Production-linked incentive scheme

The “production-linked incentive” scheme (“PLI Scheme”) was introduced by the GoI in 2020 under the “Aatmanirbhar Bharat Abhiyan” (ie, self-reliant India) mission to incentivise the so-called sunrise sectors of economic development. The PLI Scheme allows the nodal ministries of the identified sectors to design sector-specific incentives tailored to the challenges and growth prospects of each sector. It contemplates fiscal subsidies based on the value added to a product or incremental sales, the budget for which is directly allocated under the central budget and varies based on unique sectoral challenges.

At present, the PLI scheme includes 14 sectors, such as mobile manufacturing and specified electronic components, manufacturing of medical devices, automobiles and auto components, specialised steel, telecom and networking products and advanced chemistry cell battery.

Creation of the GeM Portal

In India, government procurement has traditionally been bureaucratic, and bidders have often faced difficulties accessing information on existing tenders and the associated processes, which has often created a perception of a lack of transparency. The Government e-Marketplace portal and the GeM-Central Public Procurement Portal (“GeM Portal”), introduced by the GoI – an online national public procurement platform designed for government departments and public sector enterprises to procure goods and services from vendors registered in the portal – have revolutionised government procurement in India. The vendors registered on this portal have access to all tenders listed by the procuring entity and can choose to participate in them online, subject to the tender conditions contained therein. The GeM Portal has significantly simplified public procurement by offering a seamless user experience for registered vendors and procuring authorities, providing access to a wide range of tenders with an online submission process, and ensuring fair treatment of all vendors.

The GeM Portal has been one of the key initiatives by the GoI to:

• ease procurement processes;
• increase the bidder base; and
• ensure transparency, efficiency and cost savings.

Further, a nuanced feature of the GeM Portal, specifically in the context of the micro-, small- and medium-scale enterprises (“MSMEs”), is the lending platform (called the GeM SAHAY) forming part of the GeM Portal, which connects registered vendors with lenders and enables access to instant loans sanctioned and disbursed digitally.

Increased Opportunities for MSMEs

The growth trajectory of the MSME segment in India has shown mixed results owing to limited access to advanced technology, supporting infrastructure, cheaper capital and an assured market for the goods manufactured or services provided by MSMEs. In India, the MSMEs are spread across sectors and are sizable in number. Similarly, the untapped growth opportunity they present is also significant.

In a growing economy like India, which has reset the focus on enhancing domestic capabilities, with initiatives such as “Make in India with zero defect and zero effect”, the PLI Scheme, the digital India revolution and an enabling environment for start-ups, MSMEs are being provided with the framework necessary for their emergence as key growth drivers. The GoI has issued guidelines for the formation of national, regional and state-level business clusters aimed at providing the necessary support infrastructure, access to technology and financial assistance to MSMEs establishing businesses within these clusters. The objective of the cluster-based development is to ensure:

• complementary methods of production, quality control and testing and energy consumption;
• similarity in the level of technology and marketing strategies and practices;
• common channels of communication for the MSMEs forming part of the business clusters; and
• access to state-of-the-art infrastructure to support the MSMEs.

These business clusters are being developed under a public-private partnership (“PPP”) model, under which the concessionaire (that is, the entity developing the business cluster) is required to design, build, operate and maintain the business clusters for use by MSMEs.

The GoI’s initiatives, however, have not been limited to only increasing the supply-side incentives or enhancing manufacturing capabilities. In fact, the GoI has issued a dedicated public procurement policy for MSMEs, which is amended from time to time, and currently all central government ministries, the respective departments and central public sector undertakings are required to undertake at least 25% of their annual procurement from micro and small-scale enterprises. The latest edition of the Manual for Procurement of Goods, issued in 2024 by the Department of Expenditure, Ministry of Finance, GoI (“DOE”), creates a specific reservation for items to be mandatorily procured from micro and small-scale enterprises.

Evolving FDI Policy

The foreign direct investment policy (“FDI Policy”) issued by the DPIIT regulates and sets the sectoral thresholds for foreign direct investment (“FDI”) into India – either through the automatic route (up to the prescribed threshold) or the government approval route (beyond the prescribed threshold). The FDI Policy, under the current government, has considerably evolved towards a more liberal framework wherein 100% (one hundred per cent) FDI has been allowed in most sectors under the automatic route, other than in strategically important sectors (such as defence and atomic energy). In recent times, the FDI limits (under the automatic route) have either been increased or removed altogether – such as:

• in the defence sector, FDI is now allowed upto 74% against the earlier 49% under the automatic route, for companies seeking new industrial licenses; and
• in the telecom sector, FDI is now allowed up to 100% under the automatic route.

The shift in the FDI Policy indicates a recognition of the need for foreign capital in India’s efforts to become a self-reliant economy, which has infrastructure, technology and manufacturing capabilities of global standards, and for the overall success of the ‘Make in India’ programme. In the energy and infrastructure sectors, especially, where public infrastructure is built through the PPP mode by grant of concession contracts by the government (at the central and state level) and requires considerable capital, the creation of an investor-friendly framework, bankable contracts and a stable regulatory framework to attract foreign investment has been of primary importance.

Further, most procurement contracts of significant value in the telecom, defence and infrastructure sectors also allow foreign participation under the international competitive bidding route – the inflow of foreign capital, in addition to global capabilities and technology, is, therefore, an undeniable necessity. The FDI Policy, in its current form, reflects this understanding by liberalising foreign investment restrictions in sectors such as defence and telecom (which are also key sectors under the “Make in India” programme).

Land Border Restrictions and Press Note No 3 Notification

While the FDI regime in India has shown movement towards a more liberalised regime, an exception to this trend has been the Press Note No 3 (2020 Series) (“PN3 Notification”) released by the DPIIT with the primary objective of “curbing opportunistic takeovers and acquisitions of Indian companies due to the COVID-19 pandemic”. The consolidated FDI Policy was subsequently amended, requiring prior mandatory government approval for all FDI originating from countries sharing land borders with India. For the purposes of the PN3 Notification, India recognises Pakistan, Afghanistan, Nepal, Bhutan, China (including Hong Kong), Bangladesh and Myanmar as countries sharing land border with India (“LBC Jurisdiction”). While the PN3 notification was issued in the backdrop of the COVID-19 pandemic, the restrictions introduced in 2020 continue to subsist to date.

The current FDI Policy also clarifies that this approval is required for:

• (i) investments made by entities incorporated in countries sharing land border with India;
• (ii) where the “beneficial owner” of the investment in India is situated in or is a citizen of such country; and
• (iii) direct or indirect transfer of ownership of existing or future FDI resulting in the beneficial ownership falling within restrictions stated in (i) and (ii).

Further, entities incorporated in Pakistan are permitted to invest in India only through the government approval route and are not permitted to invest in prohibited sectors such as defence, space or atomic energy. In March 2026, the GoI issued a press release indicating that non-controlling beneficial ownership of up to 10%, originating from LBC jurisdictions, would be allowed under the automatic route, subject to the prevailing sectoral caps. In this context, the GoI also clarified that the determination of beneficial ownership would be in accordance with the threshold set out under the Prevention of Money Laundering Rules, 2005. The press release also envisages prescribing defined timelines for process of approvals in critical sectors.

In the context of the procurement laws, the DOE issued Order (Public Procurement No 4) under Rule 144(xi) of the General Financial Rules, 2017 (“PP4 Notification”), imposing further restrictions on entities from countries which share a land border with India. The PP4 notification requires these restricted entities to register with the competent authority to be eligible to participate in any bid. The registration requirement will apply to the following categories of bidders in case of any procurement, whether of goods, services (including consultancy and non-consultancy services) or works (including turnkey projects):

• any bidder from a country which shares a land border with India;
• any bidder (including an Indian bidder) who has a specific transfer of technology arrangement with an entity from a country which shares a land border with India.

The PP4 Notification further clarifies that, in works contracts (including turnkey contracts), contractors will not be allowed to sub-contract works to any contractor from a country that shares a land border with India, unless the contractor is registered with the competent authority. The PP4 Notification mandates that tender documents require bidders to provide an undertaking that they have complied with the registration requirements under this notification and that, in the event of a false undertaking, the defaulting bidder may be debarred from participating in future tenders.

Guidelines on Dispute Resolution

Due to a severe backlog of cases before the various courts in India, including the High Court and the Supreme Court, legal proceedings can often be prolonged and cumbersome. This has often been an area of considerable concern for businesses, especially foreign companies and investors, who perceive India’s dispute resolution procedure as an entry barrier. In the context of government procurement, where most disputes carry monetary consequences, long-drawn-out legal proceedings discourage greater bidder participation in government tenders. Arbitration, as a mode of alternative dispute resolution (particularly in the context of government procurement contracts), has also faced similar criticism with respect to the length of proceedings and the complexity of enforcing arbitral awards, especially foreign awards.

In the context of this background, the DOE, on 3 June 2024, issued new dispute resolution guidelines (“Dispute Resolution Guidelines”), which provide that in government procurement contracts (issued by its departments, central public sector enterprises, public sector banks and government companies), the following principles are to be followed:

• arbitration should not be the automatic choice in government contracts, especially in large contracts;
• abitration may be restricted to disputes with a value less than INR 100 million;
• including arbitration clauses for disputes with a value of more than INR100 million will require approval from the competent authority;
• institutional arbitration may be preferred (after considering the cost of arbitration relative to the value of the dispute); and
• procuring authorities are encouraged to amicably settle disputes as per the mechanism provided under the contracts.

The Mediation Act, 2023 (“Mediation Act”), was also introduced to provide a statutory framework for the conduct of mediation proceedings as a mechanism for resolving contractual disputes between parties. The Dispute Resolution Guidelines also encourage procuring authorities to adopt mediation under the Mediation Act.

Ease of Doing Business

One of the key features of governance under the current regime has been to reduce bureaucracy and simplify the process for obtaining registrations, licenses and approvals to conduct business in India. A large part of the entry strategy for foreign entities is centred on this key area of concern, especially since each state prescribes its own regulatory framework for business, in addition to the central-level requirements.

To allay such concerns and create an investor-friendly framework, the GoI launched the National Single Window Clearance portal (“NSWC Portal”) – a one-stop digital platform for investors and entrepreneurs to obtain necessary approvals at both the central and state levels. The NSWC Portal allows entities to apply for registrations, licenses and approvals (except for a few local-level or sector-specific approvals) through a common platform. It also allows applicants to track the status of their applications in real time, thereby ensuring transparency and clarity in the business decision-making process.

India has also introduced the Jan Vishwas (Amendment of Provisions) Act, 2023 (“Jan Vishwas Act”) on 11 August 2023, which seeks to amend 42 central legislations and decriminalise technical and procedural non-compliances. As part of the central budget, the GoI has also proposed the introduction of Jan Vishwas 2.0 with the objective to further decriminalise procedural non-compliances under legislations such as:

• the Companies Act, 2013;
• Consumer Protection Act, 2009; and
• Environment Protection Act, 1986.

Anti-Bribery and Corruption

In India, procuring entities have a constitutional obligation to ensure fairness in public procurement and in awarding contracts to private parties. As these constitutional obligations affect the fundamental rights of citizens granted under the Constitution of India, any citizen (typically, the participating bidders or excluded bidders in such cases) has the right to invoke the writ jurisdiction of the courts in case it has reasons to believe that the procurement process, the evaluation criteria or the awarding of contract itself was arbitrary, irrational, discriminatory or mala fide. They also have the right to initiate public interest litigation if any decision-making by the procuring authority affects the larger public interest, including loss to the public exchequer. Often, such challenges before the courts have been on grounds of fraud, corruption, bribery or procedural malpractice. The most notable examples of such challenges were in the telecom and mining sectors, wherein the Supreme Court cancelled the license auction process altogether, as well as the licenses so granted. The cancellation of licenses posed a serious risk for investors and foreign participants, leading to the perception that the procurement process in India lacks transparency and accountability.

There has been a marked shift in this perception in recent years, as India has strengthened its anti-bribery and anti-corruption framework by improving enforcement of laws such as the Prevention of Corruption Act, 1988 and Prevention of Money Laundering Act, 2002 and empowering authorities such as the Directorate of Enforcement with quasi-juridical powers to investigate money laundering and violations of foreign exchange laws. The procurement framework in India now also requires bidders and procuring authorities to be bound by the Code of Integrity for Public Procurement and the integrity pact (included as part of the tender documents) to increase accountability across all stakeholders and reduce ethical risks in public procurement. The digitisation of certain segments of public procurement through the GeM Portal and the adoption of the e-reverse auction process have also enhanced transparency and process clarity by eliminating the human factor often prevalent in the public procurement process.

Free Trade Agreements

With global geopolitical uncertainties caused by the recent war in the Gulf countries involving the United States and Israel, the ongoing Russia-Ukraine War, and China’s economic slowdown and its consequent impact on global trade and energy security, most countries’ economic policies are having to adapt to dynamic realities. However, India has emerged as a key stakeholder in global geopolitics largely owing to its diplomacy in recent times and the opportunities that the Indian economy presents. This global recognition of India’s economic importance is evidenced by the complexity and significance of the free trade agreements India has negotiated in recent years (notably with the United Kingdom). In most instances, India has been negotiating bilateral procurement arrangements under which entities from the respective countries would be eligible to participate in government tenders in India and vice versa.

Conclusion

As India envisions becoming a USD30-35 trillion economy by 2047, government procurement will remain a critical contributor to overall economic growth. The policy-making by the GoI signals creation of an ecosystem that not only incentivises supply-side domestic capacity building (through “Make in India” and the PLI Scheme) but also endeavours to create a demand-based market for the products and services offered by Indian businesses. In recent times, procurement contracts have also addressed several contractual risks, especially regarding payment security and termination, thereby improving their bankability, particularly in concession agreements for the development of public infrastructure. These contracts are designed to balance risk allocation among stakeholders and reflect an understanding of investor sentiment, sectoral risks and commercial realities. Therefore, with recent developments in the procurement framework and the broader regulatory framework for businesses, along with the tremendous increase in economic activity, government procurement presents immense opportunities for stakeholders across sectors to participate and contribute to India’s growth story.