Q. Procurement reforms in India can act as a catalyst for innovation. Critically examine with reference to recent changes in the General Financial Rules (GFR).

 Q. Procurement reforms in India can act as a catalyst for innovation. Critically examine with reference to recent changes in the General Financial Rules (GFR).

Answer:

Public procurement is often seen as a mechanism for ensuring transparency and cost efficiency. However, in research and development (R&D), rigid frameworks can obstruct innovation by prioritising compliance over scientific needs.

India’s recent reforms to the General Financial Rules (June 2025) mark a shift in this direction. By exempting specialised research equipment from the Government e-Marketplace (GeM), raising direct purchase limits from ₹1 lakh to ₹2 lakh, and delegating authority for global tenders up to ₹200 crore to institutional heads, the government has recognised that one-size-fits-all procurement rules are incompatible with high-end research. These changes reflect the concept of “catalytic procurement,” where public institutions act as early adopters of advanced technologies.

Globally, procurement has evolved as an innovation tool. Germany’s High-Tech Strategy and the U.S. Small Business Innovation Research (SBIR) program demonstrate how procurement can deliberately shape markets and de-risk early-stage technologies. South Korea’s pre-commercial procurement even rewards prototypes meeting ambitious criteria.

While India’s reforms are promising, challenges remain. The ₹2 lakh limit is inadequate for expensive fields like quantum computing. Over-reliance on global tenders may marginalise domestic suppliers. Moreover, success depends on ethical procurement standards and effective monitoring mechanisms.

Going forward, India must consider outcome-weighted tenders (Finland model), sandbox exemptions for premier institutes, AI-enabled procurement assistance, and co-procurement alliances. Hybrid governance, drawing on U.S. lab models, can combine public accountability with corporate agility.

In sum, procurement reform is not just a financial adjustment but a research variable. If implemented well, it can transform procurement from a bottleneck into a driver of innovation.

---

📌 Quick Revision Sheet

Why it matters:

• Procurement = hidden lever of innovation.

• Stable demand → more patents + private R&D.

India’s reforms (2025):

• GeM exemption for specialised R&D equipment.

• Direct purchase limit: ₹2 lakh.

• Tender approval up to ₹200 cr delegated to heads.

Global lessons:

• Germany → Mission-oriented procurement (KOINNO).

• USA → SBIR funds startups (3% R&D budget).

• South Korea → Pre-commercial procurement.

• EU → Joint procurement for high-cost tech.

Challenges:

• ₹2 lakh cap too low for frontier sciences.

• Domestic suppliers may get sidelined.

• Trust + monitoring essential.

Way forward:

1. Outcome-weighted tenders (quality + innovation).

2. Sandbox exemptions (IITs, TIFR).

3. AI-enabled procurement assistant.

4. Co-procurement alliances (EU model).

5. Hybrid governance (U.S. Sandia Labs).

Conclusion:

Procurement should be treated as an innovation policy tool, not just a financial safeguard.