India’s digital procurement boom faces old hurdles

By mid-2026, the Indian government mandated that all Central Public Sector Enterprises (CPSEs) settle MSME invoices exclusively through RBI-authorised Trade Receivables Discounting System (TReDS) platforms, a policy anchored in the Union Budget 2026–27 aimed at rectifying chronic payment delays and enhancing liquidity for MSMEs. This regulatory push formalized digital invoice financing by enabling MSMEs to convert approved invoices into immediate working capital via competitive bidding from banks and NBFCs without collateral, catalyzing a dramatic surge in invoice discounting volumes from ₹40,000 crore in FY22 to ₹3.47 lakh crore in FY26, underscoring the policy's effectiveness in embedding digital trade finance infrastructure within public procurement.

To bolster transparency and accountability, CPSEs are now required to disclose MSME invoice transactions routed through TReDS in an RBI-prescribed format and secure statutory auditor certification confirming both platform registration and compliance during annual audits. This dual compliance mechanism not only strengthens governance but also institutionalizes digital procurement practices, reflecting a broader regulatory intent to formalize reforms that have been evolving over the past six to seven years, as highlighted by Vinod Kumar, president of the India SME Forum.

While the mandate currently applies to CPSEs, it sets a significant precedent likely to influence large private sector buyers to adopt similar digital receivables financing mechanisms, potentially revolutionizing payment discipline across wider supply chains. This expansion could enhance MSME resilience by reducing reliance on costly, collateral-based borrowing and fostering a more inclusive, transparent procurement ecosystem throughout India’s economy.

Since its launch on August 9, 2016, the Government e-Marketplace (GeM) has evolved into a transformative ₹20 lakh crore platform, facilitating over 3.78 crore orders and connecting more than 1.37 lakh government buyer organizations with nearly 25 lakh sellers across over 10,660 product and 350 service categories. This digital ecosystem has revolutionized public procurement by enabling secure, paperless, cashless, and contactless transactions, replacing the previously fragmented and opaque processes with transparent, standardized methods such as direct purchase, electronic bidding, and reverse auctions, thereby enhancing accountability and efficiency.

GeM has played a pivotal role in promoting inclusivity and economic empowerment by significantly opening procurement opportunities to Micro and Small Enterprises (MSEs), women-led firms, and startups, with MSEs alone fulfilling orders worth over ₹9.07 lakh crore. This aligns with India's policy reserving 25% of government purchases for micro and small firms, and independent studies, such as one from IIT Delhi, attribute monetized benefits of ₹86,571.69 crore and net social savings of ₹1.76 lakh crore to GeM’s efficiency and pricing improvements, underscoring its substantial economic impact.

Despite its scale and digitization successes, GeM faces persistent challenges including governance and technology issues highlighted by the 2020 CAG audit, which found weak methodologies in calculating savings, data quality problems, and that only 25% of MSME payments met prescribed timelines. Moreover, the platform remains dominated by large buyers such as coal PSUs, and issues like seller collusion, questionable vendor quality, and delayed payments persist, demonstrating that while digital tools have transformed procurement, they cannot substitute for robust institutional oversight and reforms.

GeM’s strategic integration with other public procurement portals—including the Central Public Procurement Portal, Indian Railway Electronic Procurement System, and Defence Public Procurement Portal—reflects a concerted effort to unify India’s fragmented procurement landscape into a seamless, interoperable digital ecosystem. This integration not only enhances transparency and efficiency across sectors but also supports significant procurement volumes in critical areas like Defence, where the Department of Military Affairs has crossed ₹1.35 lakh crore in cumulative Gross Merchandise Value, accounting for nearly 15% of the platform’s total procurement by early August 2026.

In July 2026, Nasscom proactively submitted eight targeted recommendations to NITI Aayog aimed at amplifying startup participation in public procurement through the Government e-Marketplace (GeM). These proposals, including automatic procurement relaxations for DPIIT-recognized startups, streamlined documentation via government database integration, and dedicated DeepTech procurement pathways, collectively seek to cultivate an innovation-friendly ecosystem that prioritizes technological merit and reduces execution barriers for startups.

By August 2026, GeM had not only surpassed Rs 20 lakh crore in procurement but also demonstrated its commitment to inclusivity by implementing dedicated programs that significantly boosted participation from marginalized groups such as women-led Micro and Small Enterprises (MSEs) and startups. This inclusive momentum is further reinforced by awards recognizing MSE engagement, exemplified by BEML Limited receiving the 'Maximum Order Value to MSEs' award from Union Minister Piyush Goyal, highlighting how digital platforms like GeM empower large public sector enterprises to source from smaller, diverse suppliers and foster equitable growth.

By August 2026, the Government e-Marketplace (GeM) had embarked on a strategic initiative to integrate with key procurement systems such as the Indian Railway Electronic Procurement System (IREPS) and the Defence Public Procurement Portal (DPPP), aiming to forge a unified and interoperable digital procurement ecosystem. This integration not only consolidates functionalities across platforms but also links with the Central Public Procurement Portal (CPPP), offering a single access point for government tender information nationwide. Such unification enhances transparency and efficiency, streamlining procurement processes across diverse government sectors including railways and defence, and marking a significant evolution in India's public procurement landscape.

The 2020 CAG audit of the Government e-Marketplace (GeM) exposed critical governance and technological shortcomings, including a weak methodology for calculating savings and significant data quality issues. Alarmingly, only 25% of payments to MSMEs met the prescribed timelines, underscoring persistent delays that undermine the platform’s promise of efficiency and inclusivity.

In response to concerns about fairness and competition, the Finance Ministry issued directives in mid-2026 cautioning central government entities against imposing excessively high turnover and payroll criteria in consultancy tenders on GeM. By emphasizing adherence to the Manual for Procurement of Consultancy Services (2025 edition), the ministry sought to ensure that qualification requirements are proportionate and justified, addressing findings that inflated criteria often restrict competition unnecessarily.

Despite GeM’s transformative role in digitizing public procurement and integrating millions of small sellers, entrenched challenges like seller collusion, questionable vendor quality, and delayed payments persist. As the Finance Ministry highlighted, these issues demonstrate that digital tools alone cannot substitute for robust institutional oversight, reinforcing the need for strong governance frameworks alongside technological innovation to realize truly inclusive and transparent procurement.