New Delhi: The
government Tuesday approved a procurement policy which makes it
mandatory for all state-run companies, ministries and departments
to procure 20 percent of their products and service needs from
small and medium enterprises (SMEs).
The decision, aimed at providing SMEs an assured growth
opportunity, was taken at a cabinet meeting chaired by Prime
Minister Manmohan Singh here.
Giving details, the Minister for Micro, Small and Medium
Enterprises (MSME) Virbhadra Singh told reporters that the policy
would become mandatory three years from now.
"Government departments not conforming to the mandatory
procurement would be required to provide reasons to a review
committee set up for the purpose," the minister said.
Welcoming the move, MSME body Federation of Micro and Small and
Medium Enterprises (FISME) said it will help protect the sector
form market fluctuations and provide ample scope to grow.
"This is a welcome move as it would help provide support to the
MSME sector which is very vulnerable to market fluctuations,"
FISME president V.K. Agarwal said. "We feel the move will
demonstrate that the sector is capable of high quality production,
good enough for purchases by the government."
There are over 26 million small and medium scale firms in India
across several industries and they contribute to about 8 percent
of the total gross domestic product.
Under the policy, every central ministry and state-run firm will
set an annual target of procuring a minimum 20 percent of the
total purchases of products and services from the MSME sector.
Of the 20 percent target, a sub-target of four percent would be
earmarked for procurement from the SMEs owned by entrepreneurs
from the Scheduled Castes and Scheduled Tribes (SC/ST)
"However, in the event of failure of such MSEs to participate in
the tender process or meet the tender requirements and the L1
price (lowest bid), the four percent sub-target for procurement
earmarked for MSEs owned by SC/ST entrepreneurs will be met from
other MSMEs," Virbhadra Singh added.
In the overall production chain, MSMEs are highly susceptible to
volatile market conditions. To address such problems, many
countries have put in place public procurement policies to support
MSMEs and to ensure a fair share of market to such firms.
"Under the existing dispensation in India, the government
guidelines provide for support in marketing of MSME products
through a variety of measures such as price preference,
reservation of products for exclusive purchase from MSMEs, issue
of tender sets free of cost, exemption from payment of earnest
money," said an official note from the cabinet.
"In practice, however, most of these facilities are not being
provided to the MSEs by the government departments," it added.
However given their unique nature, defence armament imports will
not be included in computing the 20 percent goal for Ministry of
Defence. In addition, defence equipment like weapon systems,
missiles will remain out of purview of this policy.
In departmental and state-run enterprises' tenders, participating
MSMEs will be allowed to supply a portion of their tender even if
their bids are higher than the lowest bid but are not more than 15
percent costlier than the lowest bid.