Following the callous attitude of public enterprise, several MSME associations have complained to the government. As a result the MSME Minister Kalraj Mishra has issued a stern warning to public enterprises to fall in line as otherwise drastic action could be contemplated.

In the face of growing complaints from MSMEs, Prime Minister took a review meeting recently to deal with this problem, which was followed by a review meeting by MSME minister with his senior bureaucrats including the new MSME secretary K K Jalan, whose first task now appears to be set right this anomaly.

A detailed analysis made by the MSME ministry revealed that less than 100 of the 220 central public enterprises procured from MSMEs this financial year. Even these enterprises did not touch 10 per cent of their procurement from MSMEs, which put them in poor light, senior officials in the ministry said.

Government notified public procurement policy for Micro, Small enterprises order in 2012 under The Micro, Small and Medium Enterprises Development Act of 2006. But the mandatory 20 per cent procurement from MSMEs came into being from April one 2015. Under this 20 per cent mandatory procurement target, there is a sub target of 4 per cent out of the 20 per cent earmarked for procurement from MSMEs owned by Scheduled casts and Scheduled tribes.

The procurement policy of 2012 had provided 3 years time for achieving this 20 per cent so that it could be made mandatory from 2015. The order also provided PSUs giving valid reasons if they were unable to comply with this mandatory procurement.

The order also ensures that there is virtually no price preference to MSMEs so that PSUs are not put to any disadvantage by procuring from MSMEs. The idea of the order is to basically help boosting production from micro and small enterprises without putting adding to the overall coast of public enterprises because of this procurement.

Cut up with attitude of the public enterprises, MSME Minister Mishra will chair a meeting of first batch of 30-40 CMDs of Public Enterprises in mid-February, ahead of the general budget to ask them pull up their socks so that they adhere to this government order.

Several MSMEs have repeatedly complained to the government this is not the only problem. Under the Act, large companies have to mandatorily make the payment for procurement from MSMEs within 45 days, failing which they have to provide penal interest as well. The large companies have to show in their balance sheet about the quantum of payments made as well as pending payments to MSMEs.

Despite this stringent provision, many large companies including public enterprises default in payments to MSMEs resulting in severe working capital crunch. In spite of repeated warning from the government, large companies seem to be not bothered, several MSME associations rued.

Apart from contributing 40 per cent of manufacturing, MSMEs contribute 45 per cent of India’s exports. There are nearly five crore MSMEs in the country accounting for nearly 11 crore jobs. The organized sector comprising mostly large companies, accounted for nearly 2 crore jobs in the country.

Also MSMEs are mostly labour-intensive. It creates one job for every Rs 1.5 lakh investment unlike capital intensive large companies which required at least Rs 6 lakh to create one job. It also contributes to rural development.

The MSME ministry, which is serious about pushing public enterprises to fulfill their mandatory obligation towards MSMEs will hold series of meetings with PSU CMDs. Mishra will be meeting all the 220 central PSU CMDs in batches next three to five weeks to set right this issue. The ministry is keen that this issue is set right in the first year of this mandatory procurement order. Defence PSUs are exempt from fulfilling this order.

Meanwhile, government has also constituted a committee under MSME Secretary to review the list of 358 items reserved for exclusive purchase from Micro and Small enterprises on a continuous basis. The committee will hereafter monitor on a regular basis to ensure effective implementation of public procurement policy.

This review of PSU procurement from MSMEs assumes significance as this came ahead of the budget, which is expected to come out several more initiatives for MSMEs as well as start-ups in view of their huge job creation potential especially in rural areas. (IPA Service)