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Industry hails Cabinet nod to MSME procurement policy

The Indian industry has hailed the decision of the Union Cabinet to clear the Public Procurement Policy that would require all central ministries and public sector units to purchase at least 20 percent of their total annual purchases from the MSME sector.

“This is a very welcome move as it would help provide support to the MSME sector which is very vulnerable to market fluctuations,” said the Federation of Micro and Small & Medium Enterprises (FISME).

“We thank the Government of India in general and the Ministry of Micro, Small and Medium Enterprises in particular for positively responding to our long standing demand that at least 20% of public procurement should be from the MSME sector,” FISME President V.K. Agarwal added.

Citing examples of EU, Australia, Brazil and China where similar policies are already put in place, Agarwal said the move brings India in line with global practices. “The United Kingdom is planning to award 25% of public contracts to the small businesses apart from introducing an agenda of greater transparency through a move to publish online all government spending up to a specified limit,” he added.

“We feel the move will also help to further demonstrate that the MSME sector in India is capable of high quality production good enough for purchases by the government. Given that Indian MSMEs have already proven their capability by accounting for 40% of all exports, this policy measure sort of endorses this fact strongly and loudly,” Agarwal said.

“While welcoming this move heartily FISME, however, urged the government to look at what can be done to ensure that similar policies are adopted at the state level as well.

Reacting to the clearance of the procurement policy, CII Director General Chandrajit Banerjee said the policy shall help and facilitate the backward and socially weak entrepreneurs (SC/ST) get a foothold in the procurement process, by the government and the PSUs.

"In India the PSUs procuring a percentage of their goods from MSMEs was not mandatory, but this policy would help transform authorities' mindset that goods manufactured by MSMEs are good enough for PSUs and the Government," CII said.

The MSME sector plays a crucial role in the socio-economic development of the country. There are 26 million MSMEs in India that employ about 60 million people, contribute about 8% to its GDP, 45% to its industrial output and 40% to its exports.

Industry body PHD Chamber said that the Cabinet approval for the public procurement policy wherein the public sector would be obliged to procure up to 20 per cent of their annual purchases from the MSMEs fulfils the long standing demand of the sector.

"The policy would help MSMEs to overcome the marketing constraints which was a deterrent for realising their full potential. The new policy would help create new entrepreneurs who would be more confident in gaining market access for their produce," said PHD Chamber President Salil Bhandari.

"A sub-target of 4 per cent out of 20 per cent for the SC/ST segment would bring the socially disadvantaged classes into the mainstream and encourage them to set up businesses in their area of expertise. It would also help in employment generation," he added.

"The preferential procurement policy exists in countries like Australia, China, the EU, the UK and the USA for small businesses. Now, India also joins the league. It should be implemented in the spirit in which it has been announced so that the public sector, which at present procures a mere 4-5 per cent from the segment, could enhance their purchases from this sector and thereby create a new chapter in public-private partnership", Bhandari added.