Ease of Doing Business for MSMEs: Even as the government has been surpassing its annual public procurement target of 25 per cent from micro and tiny enterprises (MSEs) of their all round acquiring, a quantity of significant corporates have been setting up MSE subsidiaries to consume into standalone MSEs’ share of public procurement tenders, professionals told TheSpuzz Online. While on one hand, procurement from MSEs has been 26 per cent, 30 per cent, and 28 per cent in the course of FY19, FY20, and FY21 respectively as per the obtainable information on the public procurement policy monitoring portal MSME Sambandh, significant enterprises have tapped into the public procurement chance for MSEs by way of their personal sister MSEs issues on the other hand.
“There are certainly around 5-5.5 lakh MSEs that are basically subsidiaries of some of the very well-known Indian corporates and have a stronghold in the public procurement process. Businesses operate them without lending their names to them. Since June, the number seems to have increased,” Chandrakant Salunkhe, Founder and President, SME Chamber of India told TheSpuzz Online. The association represents more than 90,000 MSMEs as members. Salunkhe, nonetheless, declined to name corporates involved in public procurement by way of their MSEs.
Comments from the Office of the Development Commissioner-Ministry of MSME have been not instantly obtainable more than calls and e mail for this story.
While the MSME sector has been struggling to overcome the challenges imposed due to the Covid pandemic, the government had last year announced relaxation in the public procurement method. As per the initiative – element of the Atmanirbhar Bharat programme — Department of Expenditure had amended Rule 161 (iv) of General Financial Rules, 2017 to restrict international tenders up to Rs 200 crore, unless prior approval is obtained from the Cabinet Secretariat, in order to advantage MSEs. As the government is one of the largest purchasers of goods and services in the nation, this restriction had boosted the morale of MSEs as it aimed at delivering a level playing field to MSME units in public procurement.
“This announcement, hence, posed a risk of loss of business to large entities and as a result, they set up MSE units with the sole motto of participating in the revised public procurement process. Large firms have inherent advantages such as funds, extending the use of their existing systems for running their MSEs leading to lower operations cost and overall cost of product and services, advantages of bulk procurement from their existing suppliers extended to their MSEs for latter to sell at a lower price without compromising on the margins, hiring better talent, and more, that will only worsen the sufferings of MSEs,” Vishal Kumar, Co-founder and COO of MSME advisory platform MSMEx told TheSpuzz Online.
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Interestingly, the government has not been conscious of significant organizations setting up their wholly-owned MSE subsidiaries to obtain public procurement tenders. In response to a query in the Rajya Sabha in March this year on no matter whether the government is conscious of the predicament, former MSME Minister Nitin Gadkari had replied, “No”.
“There is a strong and deliberate effort made by the large sector here and they are definitely doing this by their own offshoots and getting new entrepreneurs to join them and show the unit as MSE in that entrepreneur’s name whereas the profit goes to them. Large enterprises were sought to support MSEs in their growth but they don’t have permission to kill them. I have seen in meeting with ministries how MNCs have always tried to reserve their products in spaces belonging to MSMEs and they have been successful in doing so as bureaucracy supported them,” Subodh Jindal, President, All India Food Processors’ Association, and Founder, Excelsior Food & Chemical Industries told TheSpuzz Online.
Competing with MSEs backed by significant enterprises, which supply competitive pricing, is probably to shrink the margins of normal MSEs. This may well additional defeat the goal of providing devoted space to MSEs in the public procurement method. Moreover, the quantity of MSE players vying for the chance has also been elevated following the government not too long ago reinstated retailers and wholesale traders beneath the MSME definition. Also, the MSME definition was revised last year to boost turnover limit to up to Rs 50 crore for tiny units even though for micro-units, it was elevated to Rs 5 crore that expanded the volume of enterprises in these categories.
Importantly, corporate-backed MSEs can’t be questioned as they are registered entities operating in the marketplace. “We are observing the situation but we cannot stop them as anyone can do business but the government should take necessary steps to help MSEs,” added Salunkhe. “The government should look into the MCA/ ROC data to validate this scenario. In addition, the government should come up with the revised guidelines for public procurement and restrict wholly-owned MSE units of such large entities to stop participating in the public tendering process,” mentioned Kumar.