Wednesday, November 9, 2011

Public Procurement Policy for Micro and Small Enterprises: A Perspective

The Micro and Small Enterprises (MSEs) constitute an overwhelming majority of this sector, contributing significantly to the gross domestic product, manufacturing output, exports and employment generation. Among registered MSEs, 10.73% are owned by SC/ ST entrepreneurs, 38.7% by OBCs and 13% by Women entrepreneurs (as per IVth Census of MSMEs). 
MSEs are highly susceptible to volatile market conditions. To address this inherent problem, many countries in the advanced world have put in place public procurement policies to support MSEs and to ensure a fair share of market to such entities, for example, in USA, a minimum of 23% from Small Businesses is legislated. Under the existing dispensation in India, the Government guidelines provide for support in marketing of MSE products through a variety of measures such as price preference, reservation of products for exclusive purchase from MSEs, issue of tender sets free of cost, exemption from payment of earnest money, etc. In practice, however, these guidelines are not being followed many Government Departments/ CPSUs, etc in true spirit. Therefore, there was a need for an effective policy which mandates the Central Govt. Deptt. /CPSUs to procure necessarily from MSEs.
Ministry of MSME has formulated Public Procurement Policy for MSEs which has been approved by the Cabinet.
The Salient features of the Public Procurement Policy are as under:
  • Every Central Ministry/Department/PSU shall set procurement goal of minimum 20 per cent of the total annual purchases of the products or services produced or rendered by MSEs.
  • Out of 20% target of annual procurement from MSEs, a sub-target of 4% (i.e., 20% out of 20%) will be earmarked for procurement from MSEs owned by SC/ST entrepreneurs.
  • The overall target of 20% is proposed to be made mandatory at the end of 3 years.
  • For enhancing the participation of SCs/STs in the Government procurement, the Central Government Ministry/Department/PSUs will organise special Vendor Development Programmes, Buyer-Seller Meets etc.
  • Every Central Government Ministry/Department/PSU will report the goals set with respect to procurement to be met from MSEs and the achievement made thereto in their Annual Reports.
  • The MSEs participating in a tender quoting price within the band of L1+15% may also be allowed to supply at L1 price where L1 price is from someone other than an MSE. Such MSEs may be allowed to supply up to 20% of the total tendered value. In case of more than one such MSEs, the supply will be shared equally.
  • The Central Ministry/Department/Public Sector Undertaking will continue to procure 358 items from MSEs, which have been reserved for exclusive purchase from them.
  • Given their unique nature, defence armament imports will not be included in computing the 20% goal for M/o Defence. In addition, Defence Equipments like weapon systems, missiles, etc. will remain out of purview of such policy of reservation.
  • A Review Committee has been constituted under the chairmanship of Secretary (MSME) for monitoring and review of the Public Procurement Policy for MSEs. In addition, a ‘Grievance Cell’ would be set up in the Ministry of MSME for redressing the grievances of MSEs in Government procurement.

The policy will help to promote MSEs by improving their market access and competitiveness through increased participation by MSEs in Government purchases and encouraging linkages between MSEs and large enterprises.

A Broader Outlook:

     Given the present global situation of an impending or even continuing economic slowdown, creating demand within our own vast market for products produced by our own industries, would be a good buffer to ward off the negative impact.   With assured public procurement, the MSE sector has only itself as a competitor among its vast variety of products. It will not only encourage better marketing strategies but also an incentive for new designs and technologies so that their produce can compete even in international markets.   This will also have a stabilizing effect on market fluctuations of demand and supply and liquidity crisis.   With MSEs great employment generation potential, the new procurement policy will be a boost to keep generating new products with mostly locally available resources both in material and manpower.   Thus with a substantial section of national economy in good spirits, government will have its hands strengthened to chalked out policies to deal with the impact of global economic crisis.

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