India Boosts MSE Public Procurement to 42%

Materials

2 days agoPWG Publications

Boost in Public Procurement from Micro, Small Enterprises: A Government Focus in FY25

In a significant boost to the growth and development of micro and small enterprises (MSEs), the Indian government has shown a substantial commitment to procuring goods and services from these enterprises. For the financial year 2024-25 (FY25), MSEs have contributed a significant portion to the government's overall procurement needs, totaling 42% of all purchases made by the government.

Public Procurement Policy Framework

The Public Procurement Policy for MSEs was introduced by the Ministry of Micro, Small and Medium Enterprises to encourage government departments and Central Public Sector Enterprises (CPSEs) to purchase at least 25% of their annual requirements from MSEs. This policy not only supports MSEs financially but also fosters innovation and development at the grassroots level.

Key Components of the Policy:

Minimum Procurement Targets: Central ministries, departments, and CPSEs are mandated to procure a minimum of 25% of their total annual purchases from MSEs.
Sub-Targets for Special Groups:
SC/ST Entrepreneurs: A sub-target of 4% for procurement from MSEs owned by SC/ST entrepreneurs.
Women Entrepreneurs: A sub-target of 3% for procurement from MSEs owned by women entrepreneurs.

FY25 Procurement Highlights

The FY25 procurement figures indicate a slight decrease in the share of MSE procurements compared to FY24, but the overall value of goods and services purchased from these enterprises remained robust.

Total Government Procurement: The overall government procurement in FY25 stood at Rs 1.82 lakh crore, up from Rs 1.70 lakh crore in FY24.
MSE Procurement Share: MSEs accounted for 42.5% of the total goods purchased by the government, slightly lower than the 43.7% share in FY24.
CPSE Procurement: Central Public Sector Enterprises made procurements worth Rs 77,525 crore from MSEs, marking a 3.7% increase from FY24.

Top Government Ministries Supporting MSE Procurement

Several central ministries have been instrumental in supporting MSEs through significant procurement efforts.

Key Ministries:

Petroleum Ministry: With procurement worth Rs 27,072 crore.
Defence Ministry: Procurement of Rs 10,135 crore.
Power Ministry: Procurement valued at Rs 9,476 crore.
Coal Ministry: Procurement of Rs 7,734 crore.
Steel Ministry: Procurement amounting to Rs 5,821 crore.

Trends in Procurement from Special Groups

In addition to the overall MSE procurement, there has been an encouraging trend in purchasing from specialized groups within MSEs.

SC/ST Entrepreneurs: Procurement from these entrepreneurs increased from Rs 1,761 crore (1.03% share) in FY24 to Rs 2,727 crore (1.50% share) in FY25.
Women Entrepreneurs: Procurement from women entrepreneurs rose from Rs 3,153 crore (1.84% share) in FY24 to Rs 4,463 crore (2.45% share) in FY25.

Future Developments: Reclassification of MSMEs

The government is planning to reclassify MSMEs, allowing small enterprises with turnovers up to ₹100 crore to benefit from the 25% public procurement policy. This move aims to enhance the competitiveness and opportunities for more small enterprises, shifting the focus from turnover to investments in plant and machinery.

Implications of Reclassification:

Increased Beneficiaries: More small enterprises will become eligible for benefits under the procurement policy.
Investment Focus: The change emphasizes increasing investments in technology and machinery.

Addressing Challenges Faced by MSEs

Despite the successes, MSEs continue to face challenges such as limited access to credit and payment delays, which can create significant liquidity constraints. The government has initiated several measures to address these issues:

Grievance Cells: Establishment of grievance cells to redress procurement-related grievances faced by MSEs.
Committees for Review: Committees to review the progress of CPSEs in purchasing goods and services from MSEs.
Legal Provisions: Implementation of the MSMED Act, 2006, to address delayed payments and support MSEs through legal frameworks.

Conclusion

The government's commitment to MSEs through public procurement is a significant step towards fostering economic growth and development at the grassroots level. As the sector continues to evolve with new policies and reclassifications, it is expected to play an increasingly vital role in India's economic landscape. With trends indicating growing participation from diverse groups within MSEs, the future looks promising for these enterprises in contributing to India's economic prosperity.

This article aims to provide comprehensive insights into the role of MSEs in public procurement, highlighting both achievements and future developments in this critical sector.

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