New Delhi, Nov 1 (IANS) 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.
The decision, aimed at providing MSEs 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.
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 MSEs owned by SC/ST entrepreneurs, Virbhadra Singh said.
‘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 MSEs,’ he 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 MSEs 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 MSEs, 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.
Central Ministries and state-run companies will continue to procure 358 items from MSEs, which have been reserved for exclusive purchase from them.
A committee has also been constituted under the chairmanship of Secretary, MSME, to review the list of 358 items reserved for exclusive purchase from MSEs on a continuous basis and for monitoring and review of the Public Procurement Policy for MSEs.
