How does the Indian government buy stuff?

**Akshara** (0:04)
In today's episode, we'll break down one interesting story. We'll talk about how the Indian government buys stuff. Welcome back to The Daily Brief by Zerodha, where we cut through the noise to help you understand what's actually happening in the most important stories from business and markets. I'm your host Akshara, and today is Tuesday, 18th August. Coming to the first story. Last week, the government marked 10 years of the government e-marketplace or gem with a fact sheet full of very large numbers. Rupees 20 lakh crore of cumulative purchases, 25 lakh sellers, more than 10,000 categories of goods, and 350 categories of services.
When we looked at the website, the government was buying everything from vaccine doses to optical fibers to sanitary napkins. Put like that, it sounds like the government has built itself, and Amazon, well, not exactly, but what it has built is one part of something much larger and much less discussed, public procurement. This is where a budget line stops being a number presented on 1st February every year, and becomes a real thing the government spends money on. It's one of the biggest levers the state has over the economy. So India spent somewhere between one fifth and one third of its GDP on public procurement. And it's large enough that governments everywhere use procurement as industrial policy, too.
India reserves 25% of its purchases for micro and small firms. Now, GEM itself is only a slice of that. It handles goods and services. So everything the government builds, from roads to bridges, runs through a separate system altogether called the Central Public Procurement Portal. And the railways have their own, and so does defense, but there are talks to integrate it all with GEM to create an interoperable public procurement system.
Even at Rs 5 lakh crore a year, GEM is just one rail in a procurement network nobody has mapped end to end. So we went looking at how this machine actually works. Let's dive in. So what gives GEM the authority to be the way the government procures? That power comes from Rule 149 in the General Financial Rules, the Finance Ministry's rule book for spending public money. And it says that if something is available on GEM, central ministries, departments, public sector undertakings, and autonomous bodies must buy it there. There's no minimum value. So this rule came in 2017 alongside the closure of the Directory General of Supplies and Disposals, or DGS&D, which had handled the government's central purchasing since the 1950s. GEM inherited both its job and its mandate. But states are the exception. The center cannot force them to buy through GEM, so states join by signing agreements instead. And they're coming in fast. State purchases on the platform grew 38% last year, and all this gives GEM roughly 1.37 lakh government organizations on the buying side. And on the other side are 25 lakh sellers. Nearly 75% of the active sellers are micro and small enterprises, and the platform also has women-led firms, SCST-owned MSCs and startups. Now, the process itself is quite simple. Someone decides they need something and writes down the specification. Then GEM decides how they can buy it based on the value. So below 50,000 rupees, they can buy straight from the catalog, much like any e-commerce platform you can think of. Between 50,000 rupees and 10 lakh rupees, they must compare at least 3 manufacturers and pick the cheapest. Above 10 lakh rupees, they run a full bid or a reverse auction, where qualified sellers compete by undercutting each other live. Once the order is delivered, a receiving officer signs an acceptance certificate, and only then does the seller get paid. Now, the growth has certainly been startling. GEM did Rs 422 crore of gross merchandise revenue or GMB in its first year, and in each of the last two years, it has done more than Rs 5 lakh crore. The first Rs 10 lakh crore of cumulative purchases took more than 8 years, and the next Rs 10 lakh crore took less than 2
But look inside those numbers, and the shopping catalog picture starts to fall apart.
So roughly half of everything bought on GEM by value is now services rather than goods. For central ministries, services make up closer to two-thirds of procurement, and central ministries and public sector companies together account for nearly 89% of the platform's annual value, while states and union territories make up only about a tenth. Narrow the lens further, and the picture gets even more concentrated. The single largest buyer in recent years has been the Ministry of Coal, and much of that comes from coal handling and transport contracts placed by Coal PSUs, which is around Rs 42,000 crore in one year alone. The largest order ever placed on GEM is NTPC's Rs 20,400 crore contract for mine development and operations. So what makes this truly surprising and ironic is that when GEM published its handbook in 2018, one of the categories the platform said it would never cater to was mining services.