Govt to buy SME services

NEW INITIATIVES: A new scheme may make it mandatory for government departments to buy 10 per cent of services from small enterprises

Small and Medium Enterprises (SMEs) in India will soon be assured of a guaranteed proportion of the government procurement market thanks to a new government scheme which is in the works.

According to sources in the know, the government will soon be introducing a scheme which will make it mandatory for central and state governments to procure 10 per cent of the goods and services it needs from SMEs.

In the present scenario, it is not mandatory for the government to procure goods and services from SMEs. The provision for making procurement from SMEs statutory was recently made part of the MSME Development Act which was passed in October this year.

Clause 11 of the MSME act, provides for the "notification of preference policies, by the Central or a State Government, in respect of procurement of goods and services, produced and provided by SMEs, by its Ministries, departments or its aided institutions and public sector companies"

However, according to sources in the SSI ministry, the scheme for mandatory procurement from SMEs is still under preparation. "We are studying various models of government procurement from SMEs in different countries. The details of the scheme are being worked out," sources, said.

SMEs would benefit a lot from being granted a proportion of the market. "It will help SMEs overcome the obstacles they currently face in gaining entry to the government procurement market. Information about the market for government contracts is not easily available and SMEs often do not have the resources to gain this information," Sarita Nagpal, head, manufacturing services, CII, said.

Also, improving SMEs access to the government procurement market could help start up SMEs and established SMEs to grow into larger enterprises.

SMEs could play an important role in government procurement market. India has an estimated 11.86 million SMEs and these enterprises employ close to 28.29 million people.

Redressal forum on the anvil

The government is looking at establishing a dispute settlement tribunal, known as the Micro and Small Enterprise Facilitation Council, to help Micro Small and Medium Enterprises (MSMEs) to settle disputes with buyers. The decision to set up a tribunal is part of the MSME Development Act, that was passed in October this year.

The tribunal will act as an arbitrator in a dispute between the suppliers located within its jurisdiction and a buyer located anywhere in India, according to the act.

The dispute settlement tribunal will be headed by the director of industries in the department of state government and it will also consist of representatives of associations of MSMEs in the state and representatives of banks and financial institutions lending to MSMEs.

State governments can also though a notification, establish one or more facilitation councils in the state. "MSMEs can make an appeal at the council if the buyer fails to pay the dues within 45 days of purchase," Sarita Nagpal, CII, said.

A steering governing body which consists of 40 members has also been set up as part of this act. The body will have representation from all the state governments and the industry. This body will monitor the progress of the implementation of the act, every quarter .

State governments will set up committees to monitor the progress of the act.

Under the act, the government has identified 1,600 geographical clusters of MSMEs which contribute to 80 to 85 per cent of the output of the entire MSME sector.

Out of the1600 clusters, 65 per cent contribute more than 65 per cent of the sector's output and out of the 500 clusters, the government has identified 105 clusters which contribute to 40 per cent of the sectoral output.