MSMEs seek bigger slice of public procurement pie

In its Budget suggestions, Federation of Indian Micro and Small & Medium Enterprises (FISME) has said that smaller firms are getting elbowed out from public procurement as orders are generally bundled up making their size very large.

Adding to the problems, government is increasingly getting projects executed on turn-key basis through large corporates which do not fall under public-private-partnership (PPP) for the MSMEs.

"These practices need to be checked and remedial steps taken," the industry body has written to Finance Minister Nirmala Sitharaman.

Public procurement as a percentage of GDP in the country is estimated at 20-22 per cent. Given the size of Indian economy ($2.7 trillion), the public procurement amounts to nearly $500 billion annually. Central Public Sector Enterprises (CPSEs) are a major contributor to public procurement of works, goods and services.

As per the current policy, every central ministry, department and PSUs are required to mandatorily procure 25 per cent of their supplies annually from the MSME sector. But MSMEs have been complaining that many government entities do not adhere to the guideline.

The FISME has proposed generous payment terms from the government to encourage greater number of participants in the bidding process especially MSMEs.

It cited the example of South Korea where MSMEs could be given advance up to 70 per cent of the purchase price. Similarly, an SME network loan program enables SMEs to obtain bank loans for up to 80 per cent of the relevant contract price to cover the costs of contract execution.

South Korean government also gives special visibility to innovative products from SMEs by including them in a special procurement KONEPS catalogue. A similar initiative could be undertaken through GeM (Government E-marketplace) platform in India," the FISME has said.