The ministry urges Central and state governments to give importance to MSMEs while making purchase decisions
By EB Bureau
Tuesday, February 04, 2014: The Ministry of Micro Small and Medium Enterprises (MSME) seems to have woken up to the alarmingly low contribution made by Indian MSMEs to the country’s GDP, apart from their declining exports and manufacturing output. In a bid to overcome this problem, the ministry has kick started a review of the public procurement policy, both at the national and state levels.
Demands of the MSME Ministry
With a view to counter the import of electronic goods and components, the Ministry of MSMEs has suggested that all states should come up with public procurement policies at the state level to facilitate the growth of MSMEs.
The ministry has also requested the Department of Electronics and Information Technology (DeitY) to take measures to stop the import of technically inferior products. The Directorate General of Foreign Trade (DGFT) has also been requested to provide a list of products with export potential, along with possible destination countries to which the MSMEs can export.
In addition, several Central government ministries have been asked to identify products that they import, but require only low to medium end technology to manufacture, so that these products can be procured from the MSMEs. These ministries can also come up with specific schemes that encourage domestic manufacture of these products.
Public procurement policy
In November 2011, the Union Cabi-net had approved a procurement policy that requires government departments and public sector undertakings (PSUs) to give preference to MSMEs, including those belonging to SC/ST entrepreneurs, while making purchases.
As per the public procurement policy, all Central ministries and PSUs, barring those in the defence sector, will have to ensure that a minimum 20 per cent of their total annual purchases of products or services are from MSMEs. However, several ministries are yet to come up with a viable procurement plan.
Current scenario
At present, the quantum of electronic products being procured from MSMEs is almost negligible. Amit Jain, managing director, Duggar Power Products, says, “The level of procurement of electronics from MSMEs is just 5 to 7 per cent, although this figure can be a lot higher.”
The ministries of communications and IT, telecom and railways are among the few engaged in procuring from MSMEs. Of late, the education ministry has also been procuring products from MSMEs due to the widespread digitisation of education content. Apart from these, municipal corporations and electrical boards are also actively participating in local procurement.
The government is playing a very crucial role in strengthening MSMEs, and has come up with several policies to secure their interests. However, there is a huge gap between these policies and their effective implementation. “The government is making an effort to ensure these policies are successful,” says Amit Jain.
Factors affecting MSMEs
Till now, MSMEs have failed to impress government agencies during the procurement process despite several measures undertaken by the ministry. One of the primary reasons is that the MSMEs offer low value added products. These enterprises lack technical capability, quality and are also not considered to be organised. MSMEs are structured in such a way that they are not fully able to measure up to the demands of time and resources, compared to the larger units. Hence, most of them prefer to operate in the informal and unregistered segment, which accounts for over 95 per cent of all MSMEs.
