1. Ignorance of the administrators - the programmers in the institutes, if any, have to listen to the design ideas of the administrators even when the programmers are more competent and up-to-date. The administrators may be competent in their own areas, but they have to be listened to at all costs.
2. The programmers in these institutes are often sidelined, and their work is seen as inessential. So, many of them lack motivation to update their skills. Regular "refresher courses" to update skill-sets are hardly ever funded.
3. There are a lot of restrictions to government companies outsourcing work to private companies - in general it is very difficult for government companies' funds to flow to private companies - for example, all govt. employees have to fly Air India, even when other airline tickets are cheaper. In things like website development, this means that it is hard (not impossible) to subcontract the work to a non-government agency. Also, the private subcontractors who do get the projects leave after 3 years or so, since there is no maintenance contract built-in. The maintenance contractors who come in later have no idea what the existing code base is.
Overall, I think this is a system designed to minimize corruption. Please see a related analysis on the healthcare.gov debacle - "Furthermore, many of the procurement policies that make access to services like AWS difficult have been put in place to prevent corrupt or unjust spending of taxpayers’ money. Unfortunately many of these policies have become so complicated that the issues get obfuscated, they repel innovative and cost effective solutions, and ultimately fail to achieve their original intent. " [1]
The policy does a bad job at preventing corruption, anyway. But especially in the case of a fast-changing technology like web development, it is a ridiculous hurdle. (No, I am not a programmer, just an exasperated government employee in India, who is aghast that so much of talent in the country is not allowed to be used just because of ill-made legislation. I am not a fan of vigilante activism either - they have no idea of the kind of policy fetters that people have to deal with in government.)
[1] http://www.civicagency.org/2013/10/learning-from-the-healthc...