Ease of Doing Business for MSMEs: The central government purchases from micro and small enterprises (MSEs) have hit a record high in the financial year 2021-22, according to the official data. This comes in the backdrop of the gradual increase in the share of procurement made from MSEs by most of the government ministries and departments out of their overall annual public procurement in the past four years barring the Covid year. In fact, going by the data available on the public procurement policy monitoring portal MSME Sambandh, the aggregate procurement by the central government from MSEs has been exceeding the 25 per cent minimum annual threshold consecutively since FY19.
The background to this growth is the government had earlier mandated public buyers to procure at least 20 per cent of their annual procurement of goods from MSEs. The limit was enhanced to 25 per cent in 2018. In FY19, the MSE procurement share was 26.32 per cent amounting to Rs 40,399 crore which jumped to 30.18 per cent in FY20 though the value declined marginally to Rs 39,665 crore. It further increased to 33.93 per cent worth Rs 42,586 crore in FY22 after dipping to 27.95 per cent, though still above the 25 per cent threshold, during FY21 amid Covid.
However, during the FY15-FY17 period, the government buyers had failed miserably to hit the minimum procurement levels. The share of government procurement from MSEs stood at only 11.6 per cent in FY15, 4.5 per cent in FY16, and 10.3 per cent in FY17, according to the available data.
The latest 33.93 per cent growth was achieved on the back of 28 ministries and departments procuring goods from MSEs. Of these 28, 19 had surpassed the 25 per cent minimum purchase level while nine others had failed to hit the mark, the data on the Sambandh portal showed.
The 19 ministries with their respective shares of procurement from MSEs beyond 25 per cent included the Ministry of Textiles (83.8 per cent), Science and Technology (77.9 per cent), Atomic Energy (75.3 per cent), Minority Affairs (66.7 per cent), Housing and Urban Affairs (59.9 per cent), Railways (57.1 per cent), Shipping (56.3 per cent), Consumer Affairs, Food and Public Distribution (53.3 per cent), Tribal Affairs (52 per cent), Agriculture & Farmers Welfare (47 per cent), Power (40.3 per cent), Defence (40 per cent), Tourism (38.6 per cent), Mines (38.5 per cent), Steel (38.4 per cent), Petroleum and Natural Gas (35.4 per cent), Social Justice and Empowerment (33.9 per cent), and Heavy Industries (26.4 per cent). Importantly, MSME Ministry had barely managed to join the list with 25.5 per cent procurement.
However, in terms of the sheer size of procurement value, the Ministry of Petroleum and Natural Gas had bought the maximum amount of goods worth Rs 18635.93 crore from MSEs in FY22 followed by the Ministry of Defence at Rs 4,393.18 crore and the Ministry of Power at Rs 3,739.48 crore.
“We are happy about the growth in procurement. The important thing is over the last few years the number of MSEs benefited under procurement has also grown steadily while the share in overall procurement has also improved year on year,” Ishita Ganguly Tripathy, Additional Development Commissioner, Office of Development Commissioner, Ministry of MSME told Financial Express Online. The number of MSE beneficiaries under public procurement had jumped 49 per cent from 1.28 lakh in FY19 to 1.91 lakh in FY22, data showed.
According to experts, MSEs getting more than 25 per cent share in government procurement is not surprising. Gujarat-based Umesh Balani who runs Rotomag Motors & Controls to manufacture electric motors for floor care, automation, hydraulic power packs, etc., said most ministries issue multiple small tenders that generally see participation from MSMEs.
“It is not easy for one large company to, let’s say, participate in 500 small ticket tenders in comparison to 500 small businesses applying for those tenders. Hence, by nature of the tender and size of small businesses, MSMEs have a natural advantage in such tenders. For example, if there is a tender to make an expressway, it would suit one large enterprise to build it while multiple MSMEs can also offer support but for tenders to make taluka level or district/town level roads, MSMEs remain primary contenders,” Balani, who is also the Chairman of Assocham’s MSME Development Council, told Financial Express Online.
Under the public procurement policy for MSEs, the government also offers benefits of free-of-cost tender sets and exemption from the payment of earnest money to MSEs. Moreover, there are 358 items such as air coolers, bolts & nuts, PVC pipes, shovels, steel trunks, and wooden chairs reserved for exclusive procurement by the government from MSEs. The government also operates the Government eMarketplace (GeM) portal for the online procurement of goods. Since its launch in August 2016, over 98 lakh orders worth Rs 2.26 lakh crore from nearly 60,000 government buyers have been processed through GeM. Over 40 lakh MSMEs are currently registered as sellers on GeM, of which 7.64 lakh are MSEs.
Nonetheless, nine ministries that couldn’t hit and surpass the minimum procurement mark from MSEs were the Ministry of Ayush which didn’t make any purchase from MSEs, Ministry of New and Renewable Energy which made only 7.14 per cent procurement from MSEs, Coal (13.4 per cent), Finance (15.4 per cent), Commerce and Industry (19.6 per cent), Chemicals and Fertilizers (20.1 per cent), Communications (21 per cent), Space (21 per cent), and Health & Family Welfare (22.4 per cent).
Emails to the nine ministries seeking comments on underachieving the MSE procurement target didn’t solicit replies till the time of publishing this story.
However, Tripathy said the government had taken up the issue of lower procurement with respective departments and ministries recently. “Along with the Department of Public Enterprises, we had a structured discussion last month with central public sector enterprises under various ministries to encourage them to procure as much as possible from MSEs. We also tried to understand any issues they might be facing in procurement, their understanding of the Public Procurement Policy order by the government, etc.,” she added.
From SMEs’ perspective, the challenge is more regulatory. “There are problems such as lack of proper grievance redressal system. You don’t hear easily from the concerned ministry or department on the reasons in case your products are not procured. The ease of access to online services such as bids submission is not that smooth. You have to visit the respective government office before the transaction is closed. We had our products approved with multiple government offices such as the Central Public Works Department, Delhi Metro, etc., but were not procured from us,” Ashok Agarwal, Managing Director of plywood manufacturing firm, Vidya Ply and Board told Financial Express Online.
Meanwhile, the challenge of lower procurement by the government has been more critical with respect to the share of SC/ST and women-owned MSEs, which has remained historically dismal.
Against the government’s mandate to procure at least 4 per cent from SC/ST MSEs and 3 per cent from women MSEs within the 25 per cent MSE procurement limit, the procurement shares of both categories have remained less than 1 per cent so far. In FY22, Rs 962 crore of goods were procured from 8,193 SC/ST MSEs with a share of only 0.77 per cent in overall MSE procurement. Likewise, Rs 1,166 crore of goods were purchased from 8,273 women MSEs with only 0.93 per cent share.
Tripathy had earlier told Financial Express Online that in the government’s discussions with CPSEs over this issue, three reasons were identified — first, mismatch in their requirements and goods produced by women MSEs; second, quality issues with women MSEs’ produced goods; and third, limited product range to cater to CPSEs needs. “We would be further focusing on Vendors Development Programmes (VDA),” she said while emphasising the government’s target this year to improve existing procurement levels to the targetted 3 per cent from women MSEs and 4 per cent from SC/ST MSEs.