Government approves mandatory procurement policy from SMEs

November 1st, 2011 - 9:24 pm ICT by IANS  

Manmohan Singh 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 (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) communities.

“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.

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