Worldwide, the role of Micro and Small Enterprises or SMEs, has received focus attention for its inherent strength of self-employment vis-à-vis cost effective generation of more employment with greater elasticity. India is no exception to this. In the year 2006, Govt. of India enacted a special law, namely, Micro, Small and Medium Enterprises Development Act [in short MSMED Act] which is looked upon as Gita or Bible for the cause of MSMEs in India. It aims at promotion, development and enhancing the competitiveness of MSMEs providing a machinery through a legal set-up dealing with the major concerns of Micro & Small Enterprises in particular, like Delayed Payments, Procurement Preference.

 

The contribution of MSMEs in GDP is around eight percent. Its share in total production is 45% and in exports 42%. There are 2.6crs. MSMEs in India as per Quick 4th All India MSME Survey out of which 94% are unregistered. We have 18.97% MSMEs in Food Products followed by Textiles & Readymade Garments [14.05%], Basic Metals [8.81%], Chemical and its products [7.55%], Metal Products [7.52%], Machinery and Equipments [6.35%], Transport Equipments [4.5%], Rubber & Plastic Products [3.9%], Furniture [2.62%], Paper & Paper Products [2.03%] and leather and leather Articles [1.98%]. It is interesting to note there is negligible corporate governance in this sector as 94.49% units are proprietary concerns. This sector has provided employment to six crores and per unit employment is around 6.48. The market value of Fixed Investment per unit is Rs.32.26 lakhs.

 

In Pre-Liberalization era, the Small Scale Industry was much protected having reservation of 800 plus products. Many were [and still are] suppliers to the Govt. only. Many units were job-workers to the Public Sector. 15 percent Price Preference was available to them alongwith security waiver facility. The Post-Liberalization period is exactly opposite to it. Merely 21items are reserved for production by Micro and Small Enterprises. [Previously Services were left-out]. Now Enterprise includes both Manufacture & Service]. Price Preference has almost disappeared. The compulsion to procure only from Micro and Small Enterprises has been relaxed, resulting in competition even amongst MSMEs also at a high level. A sea change in Govt. approach and policies has put the Micro and Small Enterprises, mainly manufacturing, in a fix. During this period only a separate Act for this sector has demanded and debated. Rest is a history and birth of MSMED Act, 2006 and is being inforce since 2nd October 2006.

 

 

A Task Force was set-up by Hon. Prime Minister on 26th August 2009 to reflect on the issues of MSMEs. It has presented its Report in the month of January 2010. A specific recommendation of this Task Force on procurement from Micro and Small Enterprises is as below.

 

“A Public Procurement Policy for MSMEs as envisaged in the MSMED Act, 2006 may be introduced at the earliest. The policy may set a goal for Govt. Departments and PSUs to reach, over a stipulated period, a target of at least 20 percent of their annual volume of purchases from Micro and Small Enterprises and mandate them to report their achievement in this regard in the annual reports”.

 

The said recommendation has been finalized after considering the practices adopted in this regard in many other countries like USA, Japan, Malesia, Europe, Australia, Canada, Korea, South Africa. There are guidelines & rules almost in all nations to have a certain percent purchases from SMEs by the Govt. It is not as a favour but to promote the cause of SMEs with full support. For example, in USA statutory annual goal for small business procurement by federal agencies is 23 percent of prime contracts. Thus the Task Force Recommendation of 20% mandatory purchases by the Govt. and PSEs Agencies etc. from the Micro and Small Enterprises is not in isolation but has a global backing also.

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