UP government to mandate 25% procurement from local small businesses

Taking a cue from the Centre, the Uttar Pradesh government is mulling mandating 25% procurement by state government departments and public sector undertakings (PSU) from the local micro, small and medium enterprises (MSMEs).

UP is home to about 4 million MSMEs and the sector is the second largest employer after agriculture. The proposed procurement policy is expected to provide a major boost to the beleaguered sector, which has been weathering tough competition and a general slowdown over the past several years.

A former UP chief secretary said the state government procurement was to the tune of more than 20% of its annual budget. Considering the annual budget 2019-20 size of Rs 4.79 trillion, the state procurement kitty would touch almost Rs 1 trillion. Thus, the proposed quota of 25% procurement from the local MSMEs would peg the total market at Rs 25,000 crore, thus giving a major thrust to the sector going forward.

The MSME sector is the real backbone of UP’s industrial landscape and contributes 60% to its annual industrial output. It employs nearly 40 million people and generates direct economic activity worth about Rs 1.5 trillion annually.

Although, the UP MSME Procurement Policy 2014 had mandated 20% procurement from the state MSMEs by the government departments and agencies, the target was never achieved because to various factors, including tough eligibility criteria, Indian Industries Association (IIA) executive director D S Verma noted.

Meanwhile, a senior MSME department official told Business Standard that the state government had already given an in principle approval to the proposal and a cabinet note was being prepared. The proposal would be put before the cabinet after the Lok Sabha elections for vetting and final nod, he informed.

Earlier, the Centre had hiked the MSME quota from 20% to 25% of the total annual purchases of the products, services produced or rendered by the sector. Of the total annual procurement from the sector, especially micro and small enterprises, 3% from within the total target has been earmarked for procurement from enterprises owned by women. A sub-target of 4% out of annual procurement is earmarked for procurement from units owned by SC/ST entrepreneurs.

The new policy in the making in UP is likely to follow the central model for greater homogeneity and uniformity in its implementation.

Annual procurement of goods & services from MSMEs by the Central Public Sector Enterprise (CPSE) during 2017-18 stood at about Rs 24226 crore, in which the share of procurement from units owned by SC/ST entrepreneur was Rs. 442 crore.

Last year, the Adityanath government had launched its flagship One District One Product (ODOP) scheme to revive the MSME sector with easy credit and marketing support. The government is also mulling collaborating with the micro finance institutions to facilitate small denomination loans to the MSMEs.