India Has Built the Grant Stack for Deep Tech. The Procurement Stack Must Evolve.
Public procurement commands over a fifth of India's GDP, yet its rules were written to buy commodities. India can rapidly scale indigenous deep tech innovation with simple amendments to the General Financial Rules.
Viksit Bharat must be built on indigenous deep technology, and indigenous deep technology will be built only when the Indian state becomes its first, largest, and most dependable customer.
The supply of grant capital has been solved at historic scale by the Prime Minister’s leadership. The ₹1 lakh crore RDI Scheme, the ₹1,27,500 crore Semicon 2.0 program to catalyse India’s semiconductor competitiveness, the ₹50,000 crore Anusandhan National Research Foundation, the National Technology Missions, and the ₹10,000 crore Deep Tech Fund of Funds together form the largest pool of patient capital India has ever assembled for frontier innovation.
The demand side has no equivalent. Public procurement runs at an estimated 15% of India's GDP, the single largest demand lever in the economy. However, it operates on rules written to buy cement, stationery, and standard services.
The two are essential elements of a continuum. A grant funds the prototype. An order funds the company to scale. India has institutionalised the first half and left the second to the discretion of individual officers working under rules that punish common sense.
America and China Turned The Purchase Order Into Industrial Strategy
Both of the top two economies treat a first government order as the designed instrument that converts a funded prototype into a company. The United States has run the Small Business Innovation Research (SBIR) programme since 1982, setting aside a share of federal R&D budgets across 11 agencies to award roughly $4 billion every year to 4,000+ small firms every year solving government problems. Its alumni include Qualcomm and Moderna. The deeper mechanism sits in the Federal Acquisition Regulation itself, which permits contracting outside full and open competition when innovation justifies it.
A firm that proves a capability in early phases graduates to sole-source scale contracts without re-tendering. In FY22 alone, federal agencies reported $2.76 billion of follow-on Phase III procurement flowing to SBIR firms through regular contracts. America does not merely run the pipeline from grant to order. It measures the conversion rate and publishes it.
The most famous product of this architecture is SpaceX. NASA committed $278 million to the company in 2006, when it had fewer than 200 employees, and layered contract upon contract until cumulative governmental revenue reached an estimated $22 billion. The revenue visibility, not just subsidy, is what allowed SpaceX to overcome the decadal risk of reusability.
China wrote the same logic into national strategy. Its 2006 Medium and Long-Term Plan for Science and Technology established a first-buy policy for domestically developed high-tech equipment, backed by accreditation catalogues and procurement preference. Since 2015, its first-set major technical equipment insurance scheme, upgraded again in 2024, has used public funds to absorb the risk carried by the first buyer of new domestic equipment.
Where India runs a reverse auction, China runs an insurance policy. One mechanism punishes the pioneer that approaches it to become a customer. The other protects it.
India's Rules Ask Pioneers To Prove They Have Competitors
The Indian procurement rulebook demands that a company with no parallel in the market produce evidence of its own competition. As a leading Indian deep tech founder put it to us, “Government procurement is not aligned with the goal we are setting for deep tech in this country. They are making deep tech founders who have no parallel in the market go through a three-bid process with L1 pricing. They are asking deep tech companies to do a reverse auction, where three founders compete with each other in a race to the bottom, with absolutely no margin left to finance any overheads, forget about R&D.”
This is not just one founder's frustration. Senior officials at the Comptroller and Auditor General's office have confirmed the diagnosis publicly, observing that reverse auctions and repeated scope and pricing iterations squeeze margins to unsustainable levels, and that officers default to the lowest bid because it is the safest choice for their careers. That observation identifies the structural core of the problem.
L1 is less a pricing rule than a risk-allocation rule. It relieves the officer of judgment, and therefore of blame. Audit frameworks reward procedural compliance over outcome quality, so the officer who deviates from L1 to buy a superior indigenous product carries personal risk, while the officer who buys inferior technology through a compliant process carries none. The Proprietary Article Certificate route exists on paper for single-source purchases, but it is narrowly framed and treated as radioactive. Three bids for a product with one maker is not competition. It is theatre, and the theatre has real casualties.
The most recent casualty played out in public. The Staff Selection Commission's examination contract went to a vendor that scored lower on technical evaluation than the incumbent but bid at roughly half the per-candidate price under a 70:30 weighting. The examinations of July and August 2025 produced system crashes, biometric failures, and cancelled sittings across the country, with lakhs of aspirants protesting in the streets. If lowest-price logic fails this visibly in a mature category like exam delivery, its application to advanced drones and satellite platforms needs no further argument.
Payment behaviour compounds the wound. Contractual timelines of 30 to 45 days routinely stretch into actual payment cycles of 90 to 240 days, which converts the least capitalised companies in the country into involuntary lenders financing government operations from their own working capital. The exchequer pays for this indiscipline twice, because experienced vendors price the delay risk into every bid. A NASSCOM report from December 2025 found rising operational distress among pre-revenue startups that had already won government grants from iDEX, BIRAC, and TDB.
Grants without orders or timely payments create a valley of death, and the Government of India is filling it with its best founders.
The Model Already Works When India Lets It
India has already proven that well-designed procurement produces world-class outcomes.
The Space-Based Surveillance Phase 3 programme sanctions ₹26,968 crore for 52 satellites, of which 31 will be built by three Indian private companies. In January 2026, a consortium led by Indian space tech startups signed the ₹1,200 crore agreement with IN-SPACe to build the nation's first privately led Earth observation constellation, having beaten established public sector contractors on merit.
It is worth noticing where these wins occurred. They came through IN-SPACe, a new institution writing new rules, which demonstrates that the binding constraint is the rulebook and not the capacity of Indian administration.
The draft Defence Acquisition Procedure 2026, released in February, moves the doctrine from Made in India towards owned by India. Maharashtra announced this month that quality and cost based selection will replace default L1 in state tendering.
The capability is proven and the economic alignment is clear. What is missing is a standing rulebook that makes such outcomes routine rather than heroic.
Two Reforms Will Make The State A Competent Customer
The industry has submitted recommendations in various forums, and two reforms stand out as ready for adoption through amendments to the General Financial Rules.
The first is a Strategic and Innovative Procurement route for deep technology and IP-driven products. Where a product is protected by proprietary IP, has reached Technology Readiness Level 6 or above, and has three or fewer capable suppliers nationally, the procuring entity should be permitted to run limited competition among capable vendors or award a single-source contract after a documented market scan. Evaluation should shift from lowest price to best value for money across performance, cybersecurity, reliability, and lifecycle cost, with reverse auctions barred outright for this category.
A paid pilot with independent technical evaluation should graduate directly into negotiated scale procurement, ending the absurdity of re-tendering a success. A Technical Procurement Board at each ministry and PSU, with mandatory justification documentation and post-award disclosure, would secure transparency through documentation rather than through competition theatre, and would give the honest officer a rule to stand on rather than a deviation to defend as a default.
The second is statutory payment discipline. Acceptance of delivered goods and milestones should be deemed complete within 30 days unless deficiencies are communicated in writing. Payment should follow within 45 days of acceptance, delinked from fund availability and internal approvals. Delays should attract automatic interest at 24% per annum with no claim required from the supplier, applicable to every department and PSU regardless of the vendor's MSME status, with half-yearly public reporting of payment performance. The rate is deliberately punitive because it is designed never to be paid. It costs the exchequer nothing when the state simply pays on time.
The American Prompt Payment Act and the European Late Payment Directive have both demonstrated that enforceable timelines strengthen public financial governance rather than weaken it.
Neither reform requires a rupee of new budgetary allocation. Both convert the state from a reluctant buyer into a reliable customer.
The grant stack is built. The missions are funded. The founders are building. The procurement stack must now evolve to match them, because a nation that funds its inventors but declines to buy from them will watch other nations take over their markets instead.
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