Background

Government procurement occurs when the state uses public funds to purchase goods and services for public purposes. It is one of the state’s most potent economic instruments. Globally, public procurement totals an approximate of $11 trillion annually which represents 10-15% of GDP across most economies. In India, the figure is substantially higher and estimated at 20-22% of GDP, which reflects the state's structural role in economic life. The Government e-Marketplace (GeM) recorded a gross merchandise value of ₹4.09 lakh crore in the first ten months of FY 2024-25 alone. To put that in perspective, it is roughly equivalent to the entire annual GDP of a mid-sized Indian state flowing through a single government platform in under a year.

Procurement shapes markets by deciding who gets in and who does not. Which firms win contracts, which technologies get adopted and which sectors expand are all questions that the state answers through its purchasing decisions. This is precisely what Make in India, Atmanirbhar Bharat and MSME reservation schemes (policies that set aside a portion of government contracts exclusively for small Indian businesses) are designed to achieve, the underlying logic is simple- use the state’s buying power to grow domestic industries rather than simply purchasing what is cheapest. When the government is also the single largest buyer in the economy, its purchasing choices are, in effect, industrial policy. Yet, procurement also creates fiction in trade diplomacy.

Government Procurement as competition ‘carve out’ in Trade Agreements

A Free Trade Agreement (FTA) is a bilateral or multilateral deal between countries to reduce barriers to trade, including lower tariffs and easier movement of goods and services. Within an FTA, concepts like market access and national treatment operate as core disciplines. Market access refers to the ability of foreign firms to enter and compete in a partner country’s market. National treatment means that once a foreign firm is in, it must be treated no less favourably than domestic firms. When trade negotiators apply these disciplines to procurement, the mandate is that foreign firms be permitted to bid for government contracts on the same terms as domestic ones. In most of India’s earlier FTAs, including those with ASEAN, Japan and South Korea, this demand was resolved through a deliberate omission. Procurement was simply left out of the agreement altogether. Since it is not covered, it cannot be challenged. The omission is the policy. This is the procurement carve-out, and it has historically been India’s default position. What makes this moment analytically interesting is that the default has begun to shift, and such a shift is recent.

Government Procurement in India’s recent FTAs

1. India-UAE CEPA

The India-UAE CEPA (2022) was the first Indian FTA to include genuine procurement liberalisation commitments. Chapter 10 introduced national treatment obligations, meaning UAE suppliers had to be treated no worse than Indian ones, along with non-discrimination requirements for central government procurement. However, these commitments applied only above a threshold value. A threshold is a minimum contract value below which the new rules simply do not apply. India set its threshold at ₹200 crore, so only large contracts above that figure were covered. Most MSME-level procurement fell well below it and remained entirely untouched. More significantly, the chapter explicitly excluded any procurement conducted under the Public Procurement (Preference to Make in India) Order, 2017 from its scope. That Order is the domestic policy instrument which gives Indian-made goods a scoring advantage in government tenders, and its exclusion from the CEPA's reach meant India's core preference mechanism remained legally insulated. A ‘breakthrough’, therefore, with asterisks the size of a government tender notice. Scholars writing in the National Law School of India Review in 2024 characterised this as “significant public procurement liberalisation” while simultaneously questioning whether it represented genuine or only marginal change.

2. India-UK CETA

The India-UK Comprehensive Economic and Trade Agreement, signed on 24 July 2025 following fourteen rounds of negotiations marks a further evolution. For the first time, UK businesses gained access to India's central government procurement market, which is estimated at over £38 billion annually, covering goods, services, and construction above defined thresholds. India set its access threshold at SDR 450,000. SDR, or Special Drawing Rights, is the IMF's unit of account, equivalent to roughly $600,000. The UK's corresponding threshold was set at the much lower figure of SDR 130,000, which reflects the evident asymmetry in how far each side was willing to go. In a notable structural concession, UK suppliers with at least 20% UK-origin content were made eligible as Class II local suppliers under the Make in India Order. This meant they could bid alongside Indian firms in the preference category rather than being excluded from it entirely. However, the Deloitte analysis of the full legal text confirms that the government procurement chapter remains excluded from the binding dispute settlement mechanism for a time-limited period. In practical terms, this means that if India were to breach its procurement commitments, the UK currently has no legal remedy under the treaty to challenge it. Access without enforcement is a concession framed as liberalisation. The paradox persists, dressed in new clothes.

3. India-EU FTA

The India-EU FTA, formally concluded on 26 January 2026 after nearly two decades of on-and-off negotiations and described by European Commission President Ursula von der Leyen as the ‘mother of all trade deals’, also includes a dedicated government procurement chapter. Government procurement was one of the most contested chapters throughout the negotiation history. The talks stalled in 2013 partly over this impasse and resumed only in 2022. As of the twelfth round in July 2025, procurement access remained unresolved. The EU's own International Procurement Instrument (IPI, Regulation 2022/1031) is a legal tool that allows the EU to restrict foreign access to European government contracts in retaliation against countries that do not offer EU firms equivalent access. This gave Brussels explicit leverage in the final rounds of negotiation. Whether the concluded text achieves genuine procurement access or replicates the UAE model, with its threshold limitations and preference carve-outs, remains to be confirmed from the full legal text. What is already clear is that India's long-standing default of excluding procurement from FTAs entirely has now been abandoned. The paradox is no longer avoided, it is negotiated.

Procurement from the lens of Antitrust

Domestically, competition law mirrors this architecture precisely. The Competition Act, 2002 defines "enterprise" under Section 2(h) to include government departments engaged in economic activities. This means the Competition Commission of India (CCI) can, in principle, scrutinise a government body that behaves like a market participant. However, the same provision excludes activities "relatable to the sovereign functions of the government." Anything the government does in its capacity as the state, rather than as a commercial actor, falls outside the CCI's jurisdiction. Government procurement preferences, including the Make in India Order's local content mandates and the exclusion of foreign suppliers from preference categories, sit squarely within that sovereign exclusion. The CCI's jurisdiction has consequently been limited to private conduct within procurement processes, specifically bid-rigging and cartelisation among suppliers. Bid-rigging occurs when competing suppliers secretly coordinate to fix prices or divide contracts among themselves rather than genuinely competing.

In January 2026, the CCI found KKK Mills and Sankeshwar Synthetics guilty of bid-rigging in a defence procurement tender by the Directorate General of Ordnance Services. The two firms had submitted artificially aligned bids in contravention of Section 3(3)(d) of the Act, which prohibits coordinated bidding among competitors. This reflects the CCI's settled approach to procurement: it will police the conduct of private bidders within a tender process, but it will not touch the state's own preference architecture. The sovereign functions carve-out in domestic competition law and the procurement carve-out in FTAs are, in this respect, structurally identical. Both preserve state discretion, and both resist the proposition that the government's purchasing choices should be subject to the same neutrality standards that apply to private actors.

Conclusion

The procurement paradox is not a stable resting point. It is a shifting frontier. India has moved from categorical exclusion in its pre-UAE FTAs, to selective liberalisation with embedded safeguards in the UAE CEPA and the India-UK CETA, to an uncertain but formally inclusive conclusion with its largest trade partner in the India-EU FTA. Each step along this trajectory reveals the same underlying tension. Procurement is simultaneously a trade concession and an industrial policy instrument, and India's negotiators have become progressively more sophisticated at appearing to offer the former while legally preserving the latter. What changes between agreements is not the underlying logic, it is the threshold, the carve-out clause, and the scope of the dispute settlement exclusion. The sovereign walls do get lower with each agreement signed. The gates do get a little wider. But neither disappears entirely. That, ultimately, is what twenty years of negotiations produce when both sides have a point.

Sukriti Mehta is a second year law student from Savitribai Phule Pune University (SPPU)