1. 1 DRAFT POLICY OF THE GOI FOR PROCUREMENT PREFERENCE UNDER SECTION 11 OF THE MSMED ACT, 2006

2. 2 Present Policy: Facilities extended to MSEs by GOI Ministries/Departments/CPSUs : (i) Issue of tender sets free of cost, exemption from payment of earnest money, waiver of Security Deposits up to the monetary limit for which unit is registered with NSIC; (ii) Price preference of up to 15% over the quotation of large scale units; and (iii) Reservation of 358 items for exclusive purchase from SSI sector.

3. 3 Need For A New Policy The present policy is non-statutory in nature. Some of the Departments, CPSUs,.etc., do not adhere to the provisions of this policy wholeheartedly. The state governments follow different policies (and some do not indicate such preferences) for procurement preference for MSEs. The current policy does not indicate any preference for the services rendered by MSEs in government procurement, nor for disadvantaged MSEs. Price preference is seldom extended. Database of purchases from MSEs very weak

4. 4 Legal Framework for New policy: Section 11 of Micro, Small and Medium Enterprises Development (MSMED) Act-2006 For facilitating promotion and development of micro and small enterprises, the Central Government or the State Government may, by order notify from time to time, preference policies in respect of procurement of goods and services, produced and provided by micro and small enterprises, by its Ministries or departments, as the case may be, or its aided institutions and public sector enterprises.

5. 5 Draft Procurement Preference Policy 20% of annual value of purchases from MSEs The Central Government Ministries, its departments, its aided Institutions and Public Sector Enterprises to procure at least 20% of the annual purchases (of the products and services produced or provided by MSEs) from MSEs or other suppliers (as defined in Section 2 (n) of the MSMED Act, 2006)..

6. 6 II. Reservation for Disadvantaged Sections (SC/ ST/ Women) At least 20% of the value of total annual procurement of goods and services from MSEs to be procured from MSEs owned and managed by Scheduled Castes/ Scheduled Tribes. At least 10% of the value of total annual procurement of goods and services from MSEs to be procured from MSEs owned and managed by women.

7. 7 III. Preference to MSEs on Price Matching MSEs quoting price higher (up to 15%) than the lowest eligible price bid, to be given preference for procuring at least 50% of the required quantity, in case such enterprise agrees to match the lowest eligible price.

8. 8 IV. Single Point Registration Scheme Benefits Issue of tender sets free of cost, Exemption from payment of earnest money, Waiver of security deposit up to the monetary limit. The work of registration to be decentralised to allow capable state/UT industrial development organisations.etc. to register MSEs.

9. 9 V.General Policies Central Government Ministries, its Departments, its aided institutions and Public Sector Enterprises, should confirm in their Annual Reports about the status of compliance of these provisions. Eligibility clause of minimum turnover limit not to be imposed by Government buying organisations in the tenders for the procurement of goods or services from MSEs.

10. 10 Consultation with Stakeholders: Draft discussed in a meeting of the Principal Secretaries / Secretaries to the State Governments on 18.10.2006. Consultation with the representatives of prominent MSE Associations on 15.03.2007. Consultation with the representatives of some Ministries / Departments/Purchase Agencies of GOI on 16.05.2007. Consultation with the National Board for MSMEs on 13.12.2007

11. 11 Issues raised by Associations: The 358 reserved items should be retained The price preference of 15% should be retained Effective monitoring & support required Issues raised by Purchase Agencies: Proposal not PracticableMinistries like Telecommunications, Civil Aviation, Defence, Railways.etc., might not be able to fulfill the obligatory purchase Concerns on quality and reliability of timely supply by MSEs

12. 12 Other Issues: Poor database. Fluctuating purchases through DGSD. Low registration with NSIC. States support needed. Price matching would need concurrence of CVC since guidelines prohibit negotiation with anyone except L1. Security deposit Exemption needs amendment in GFR 2005, for which DoE not agreeable. Definition of MSEs owned/managed by disadvantaged sections needs to be finalised.

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