In what looks like a festive gift for MSEs, the cabinet cleared a policy that aims to boost the growth of Micro and Small Enterprises (MSEs) in India.
Public Procurement Policy for goods produced and services rendered by Micro and Small Enterprises (MSEs) makes it mandatory for PSUs and government departments to procure 20% of their products and service needs from MSEs
The policy can do a world of good to MSEs by not only providing an opportunity to aim for a pie of high value contracts that various state and central departments dole out, but also provide them a chance to rub shoulders with large enterprises and compete at a larger scale.
With 26 million MSMEs in India that employ about 60 million people who contribute about 8% to its GDP, 45% to its industrial output and 40% to its exports, there is no doubt that MSEs, SMEs together are critical for the Indian economy which was highlighted by how SMEs handled the recessionary marketplace. An opportunity like this will only enhance their chance to sustain and succeed
The policy will implemented by next fiscal but will be made mandatory 3 years from now on and government departments will then have to set a target of procuring a minimum of 20% goods/services from MSEs.
Additionally, out of the 20% a minimum of 4% will be earmarked for MSEs run by Scheduled Castes / Scheduled Tribes but incase on non-participation by such MSEs other MSEs can fill in. Also, departments who fail to fulfill the 20% quota will have to provide reasons for the same to a committee
The move highlights the importance of MSEs in the Indian economy and the policy focuses on boosting the MSE sector in India. The move can also help improve the credit worthiness for MSEs helping them secure loans easily since banks will take into account the large opportunity available. This will be in addition to attractive loan options available for SMEs already
Policy sure seems out and out beneficial on paper but like all other policies, execution will decide how real the benefits are. However, preferential procurement is not an entirely new concept and countries like South Africa have seen success by making procurement policies (BEE) with an intention to help domestic companies
What do you think about the mandatory procurement by MSEs? Do you think this will benefit MSEs and in-turn increase their contribution towards the economic development of India