The decision was taken at a meeting of the Cabinet Committee on Economic Affairs (CCEA) chaired by Prime Minister Narendra Modi here.
"Initially, 10 per cent of the indents of jute bags for packing food grains would be placed through reverse auction on the GeM (Government e-Marketplace) portal. This will gradually usher in a regime of price discovery," it said.
The decision will give a fillip to the development of the jute sector, increasing the quality and productivity of raw jute, diversification of jute sector and also boosting and sustaining demand for jute product, it added.
The move is significant as nearly 370,000 workers and several lakh farm families are dependent for their livelihood on the jute sector.
The jute industry is predominantly dependent on the government sector, which purchases jute bags worth more than Rs 65 billion every year for packing food grains.
This is done in order to sustain the core demand for the jute sector and to support the livelihood of the workers and farmers dependent on the sector.
The move will benefit farmers and workers in West Bengal, Bihar, Odisha, Assam, Andhra Pradesh, Meghalaya and Tripura.