Public Procurement Policy for Micro and Small Enterprises (MSEs) in India

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The Public Procurement Policy for Micro and Small Enterprises (MSEs) in India promotes the growth and development of MSEs by improving their market access and competitiveness.
What are the main aims and objectives?

The main aims and objectives of the Public Procurement Policy for Micro and Small Enterprises (MSEs) are to promote and develop MSEs by providing them with enhanced access to government procurement opportunities. The policy seeks to support MSEs in marketing their products and services while adhering to principles of competitiveness, transparency, equity, and cost-effectiveness. Additionally, it aims to reduce transaction costs for MSEs through measures such as exemptions from earnest money deposits and free tender documents. 

How does the program work?

The policy mandates that all Central Ministries, Departments, and Public Sector Undertakings (PSUs) procure a minimum of 25% of their annual goods and services from MSEs. Within this 25%, 4% is reserved for MSEs owned by Scheduled Castes (SC) and Scheduled Tribes (ST), and 3% for MSEs owned by women entrepreneurs.

To facilitate the inclusion of MSEs, the policy provides several benefits. Registered MSEs are exempted from paying earnest money deposits and receive tender documents free of cost. Additionally, if an MSE quotes a price within the range of L1 (lowest bid) +15%, they are allowed to supply up to 25% of the tendered quantity at the L1 price, provided they agree to match it. This ensures that MSEs can compete effectively without compromising on fairness or transparency.

The policy also includes measures to enhance market access for MSEs, such as reserving 358 items exclusively for procurement from them and mandating annual procurement plans by Ministries and PSUs. These plans must be uploaded online to provide advance information to suppliers. Furthermore, Vendor Development Programs and Buyer-Seller Meets are organized to encourage participation, particularly from SC/ST entrepreneurs.

What is the overall cost?

There is no available information about the cost of implementing the Public Procurement Policy for Micro and Small Enterprises (MSEs).

How was it implemented?

The Public Procurement Policy for Micro and Small Enterprises (MSEs) was created and implemented under the provisions of Section 11 of the Micro, Small, and Medium Enterprises Development (MSMED) Act, 2006. The policy was first notified in 2012, with the aim of promoting the growth and development of MSEs by improving their market access and ensuring their participation in government procurement. Initially, the policy mandated a procurement target of 20% of the total annual purchases by Central Ministries, Departments, and Public Sector Undertakings (PSUs) from MSEs. This target was later revised to 25% through amendments in 2018, effective from April 1, 2019.

The implementation process began with the notification of the policy in 2012, which provided a framework for its execution. The Ministry of Micro, Small, and Medium Enterprises (MSME) played a central role in overseeing its rollout. To ensure compliance, each Central Ministry, Department, and PSU was required to set annual procurement goals for MSEs at the beginning of every fiscal year. The National Small Industries Corporation (NSIC) was tasked with facilitating the registration of MSEs under the Single Point Registration Scheme to enable their participation in tenders. Additionally, amendments to the General Financial Rules (GFR) by the Ministry of Finance incorporated provisions for sustainable public procurement through platforms like Government e-Marketplace (GeM).

The policy became mandatory in April 2015 and has since been monitored through annual reporting by Ministries and PSUs. Vendor Development Programs and Buyer-Seller Meets were organized to enhance participation from marginalized groups like SC/ST entrepreneurs.

What impact has been measured?

There is no available information about the impact of the policy.

What lessons can be learned?

The Public Procurement Policy for Micro and Small Enterprises (MSEs) in India has faced several limitations in its implementation, offering valuable lessons for future improvements.

  • Strengthening Coordination: Improved coordination between regulatory authorities (e.g., Ministry of MSME), PSUs, and MSEs is essential to ensure better policy implementation. Regular training programs for procurement officials can enhance understanding of the policy provisions.
  • Simplifying Processes: Simplifying vendor registration processes, relaxing qualification criteria, and digitizing tender systems can reduce barriers for MSEs to participate in public procurement.
  • Enhanced Monitoring Mechanisms: Establishing robust monitoring systems with clear accountability can improve compliance with procurement targets. A grievance redressal mechanism should also be strengthened to address issues faced by MSEs effectively.
  • Promoting Self-Sufficiency: Policies should aim to balance preferential treatment with measures that encourage innovation and competitiveness among MSEs, reducing their dependency on government support over time.
  • Awareness Campaigns: Conducting awareness programs for both MSEs and procurement agencies can ensure better understanding of the policy's benefits and requirements, fostering greater participation from small enterprises

Implementation Challenges:

  • Many Public Sector Undertakings (PSUs) and government departments have struggled to meet the mandatory procurement targets. There is inadequate reporting and monitoring of procurement data, which hampers effective enforcement of the policy.
  • The absence of a centralized, easily accessible database of MSE vendors and a streamlined vendor registration process creates barriers for small enterprises to participate in tenders.
  • Disproportionate qualification criteria, such as high turnover requirements or previous purchase order history, often exclude MSEs from competing fairly with larger enterprises

CURATED BY

Tom Hancock

Research Associate
Global Entrepreneurship Network
United Kingdom