State governments warm up to startups, award public contracts and partnerships

In 2016, the central government exempted startups from needing prior experience while applying for public procurement contracts. Two years down the line, several state governments are doing their bit to promote these young companies with business engagements.

It is not only big tech companies like TCS, Infosys or Wipro that are bagging government contracts now. State governments are also opening up, albeit in a small way, to dole out contract orders to startups.

Leading from the front are states like Rajasthan and Gujarat, with Karnataka and Maharashtra not far behind. The startup-oriented procurement policies of these governments play a dual role: they enhance the ecosystem in their respective states, while indirectly promoting jobs and growth.

In 2016, the central government made all startups eligible to receive an exemption from the “prior experience criteria” in public procurement, a benefit that was, until then, enjoyed only by micro and small enterprises. The move was made to provide a level playing field to startups in the manufacturing sector vis-à-vis the established companies and enable startups to participate in such tenders with relaxed eligibility conditions.

It took a while for state governments to understand the change in policy and follow suit. Sources in various state governments told YourStory that in the past, though states started off wanting to support startups, they often went back to supporting MSMEs. However, that is now changing, albeit slowly.

The Rajasthan government boasts of a procurement policy for startups called Challenge for Change, where any department of the government of Rajasthan can procure services from startups and award orders worth up to Rs 1 crore. Stringent conditions like prior experience, prior turnover and prior earnest money deposit, etc. are waived off. The nodal agency is the Department of IT & Communications. To date, the government has disbursed Rs 7 crore worth of contracts, apart from the various services that startups provide the government during hackathons.

A mentor for the programme added, “The state government had organised four to five hackathons in the last 12 months and various departments have given work order ranging from Rs 5-7 lakh to various startups in different sectors.” SkillConnect and HippoCabs are among the startups engaged by Rajasthan government for its various events.

In an earlier interaction with YourStory, Akhil Arora, Principal Secretary, Information Technology and Communication, Rajasthan, said, “The Challenge for Change is a disruptive practice and a component of the Rajasthan Startup Promotion Action Agenda. It’s a one-of-a-kind initiative, which has been designed to provide startups a fair opportunity to partner with the state government and play an important role in empowering Rajasthan to be the ‘Digital-sthan’ of the country.”

A key highlight of the Challenge for Change contest is that the startups get to bid for a government contract without the need to adhere to the standard tendering process.

D Thara, Managing Director, Gujarat Industrial Development Corporation, told YourStory, “Procurement from startups is not a conscious policy per se, but a practice for the Gujarat government. For the Vibrant Gujarat Startup and Technology Summit held in Gandhinagar, we engaged with few startups and used their services.”

The startup, BeAlive was in charge of filming the event and had a commercial deal with the government. Hubilo, another startup, was responsible for event, website and planning. The company, which organised the fintech meet and governance 2030 in the event was a startup – SkyQuest. eChai, a networking platform, is another young company that was engaged by the Gujarat government.

Thara provided a historical perspective to explain the practice of procurements from startups: “By nature, Gujarat is an open bureaucracy. Just like farmers are a pressure group, here in Gujarat, entrepreneurs and founders are also a pressure group. The government has inculcated entrepreneurship in the state. GIDC is the land developer infrastructure development corporation, GIFC is the investment corporation and GSFC is the loan giver. These three entities have made many entrepreneurs crorepatis. When Gujarat was separate from Maharashtra, it was a conscious decision to boost entrepreneurship through government intervention. When we are open to industry, we are open to innovation. Once there are industries, there will be innovations.”

Recently, Karnataka's Principal Secretary, Department of IT & BT, Gaurav Gupta, said the state government was actively considering engaging with the startups, especially in the area of procurement services. “There are certain challenges while working with startups for our procurement services, but we are confident that these would be overcome a period of time.”