Favourable procurement policy will help SMEs: CII

Closer links between large and small units will benefit the entire supply chain

Many of the problems faced by micro, small and medium enterprises (MSMEs) — lack of structured markets, delayed payments from large customers, low availability and high cost of capital, obsolete technology and lack of skilled manpower — can be addressed through preferential procurement of goods and services produced by MSMEs, according to a paper by the Confederation of Indian Industry (CII).

Such a procurement policy would be a powerful tool for exercising a positive influence on the fortunes of MSMEs, considering that the government and public sector units (PSUs) are the biggest buyers in the country, according to CII.

The paper notes that Australia, Brazil, China, the European Union, the UK and the US all have preferential procurement policies favouring small businesses.

The MSME Development Act, 2006 does in fact stipulate that the central and state governments “may, by order, notify from time to time” such preferential procurement policies. Accordingly, the Union government’s MSME ministry is drawing up a public procurement policy which provides that 20 per cent of Central/State government and PSE procurements will be made from MSMEs over a period of three years. The policy is at the draft consultative stage.

CII quotes Union Ministry of MSME Secretary Uday Kumar Varma as saying, “Notification of the proposed Public Procurement Policy...will offer a much needed and less optimally used avenue for increased consumption of MSME products by Government departments and PSUs.”

The paper also suggests that the government and government agencies need to fashion a policy providing for buying, on a much larger scale, products manufactured by women, in order to help in the uplift of women entrepreneurs.

CII has suggested that the government should provide tax benefits to companies that source from MSMEs and notify a preference policy governing procurement (by the Central and State governments, their ministries, aided institutions and PSUs) of goods and services produced by MSMEs.

CII noted that such supplier-customer relationships between MSMEs and large companies would benefit the entire supply chain, and motivate large companies to help in the development and modernisation of MSMEs.