With the constantly changing geopolitical and economic scenario, MSMEs continue to face newer challenges. These challenges also bring with them opportunities to re-assess the current systems and build on them for faster future growth. Thus, it becomes essential that we try to bring together various stakeholders to find new and innovative solutions to address the roadblocks and build long term resilience and sustainability of our MSMEs.
CII compliments the Government for its commitment towards formalizing the MSME sector through interlinking of the Udyam, e-Shram, NCS and Aseem Portals. The extension of the Emergency Credit Line Guarantee Scheme (ECLGS) announced in this year’s Budget by Hon’ble Finance Minister has been a most positive step taken by the Government, bringing relief to many enterprises affected by the pandemic.
The speed of digital change has accelerated in the post-Covid age. As a result, it becomes crucial to guarantee that businesses can serve their customers’ constantly changing and growing demands. It is imperative that we assist our MSMEs in making a smooth transition from offline to online.
There is need to find solutions for end-to-end technology innovation of small businesses in India and improve customer experience. In order to meet this objective, CII has launched the initiative Project TechSaksham for assisting enterprises in digital adoption.
One of the key constraints which limits the growth potential of MSMEs is lack of market access. In this regard, a significant impetus to this sector can be provided through public procurement by central and state Public Sector Enterprises (PSEs). Being one of the largest markets for MSMEs, benefitting nearly half of all medium and small enterprises, procurement by PSEs plays a critical role in the growth of the sector.
A robust supply relationship with central and state PSEs presents a significant opportunity for MSMEs in addressing their issue of adequate market access and linkages and is mutually beneficial to both the partners. The public sector procurement opportunities result in larger and consistent orders for MSMEs.
The stringent criteria by the PSEs in terms of quality and on time delivery ensures that MSMEs adhere to such quality and benchmarking requirements and thereby, improve the quality of the goods and services provided by them as a whole. The PSEs are also benefited by working with smaller enterprises, as they get customized products, reduced lead time and lower logistics costs.
In this context, a collaborative environment amongst PSEs and MSMEs is a significant means of harnessing the potential of MSMEs. With this view, a Taskforce under the joint collaboration of CII National MSME Council and CII National PSE Council involving some of the leading MSMEs and PSEs was created where the two critical pillars of the economy engage in a continuous dialogue, with an attempt to improve practices which can lead to ease of doing business, remove information asymmetry and deliberate on policy recommendations.
The deliberations of this Taskforce have been captured in a jointly prepared White Paper on the theme of Synergizing PSE-MSME collaboration.
Through the dialogues, key bottlenecks by PSEs and MSMEs were discussed, along with ways to mitigate such constraints. It was found that some of the leading PSEs follow some practices which are beneficial to smaller enterprises and which can be encouraged to be emulated by most of the other PSEs. Some of the key best practices are highlighted as below:
• Financial relaxations in Pre–Qualification Requirements (PQRs), concessions of L1 + 15% on price preference for ranking MSME bids.
• List of imported products by PSEs by their various units with annual value may be compiled and shared with MSMEs through enterprise’s website.
• Servicing component of the project should also be routed through the TReDS platform
At the same time, recommendations that emerged in the Task Forces are segregated into four parts. The first covers suggestions on improving the procurement process through efficient implementation mechanisms, the second and third parts look at specific recommendations for adoption by MSMEs and PSEs respectively, and the fourth part highlights recommendations where government intervention is sought by PSEs and MSMEs to address the issues.
In addition to recommendations, the White Paper highlights some operational initiatives to be considered by PSEs which could streamline and strengthen the small business procurement ecosystem.
I am positive that the suggestions and best practices outlined by the Task Force will help in achieving the desired objective of fostering a sustained and collaborative relationship between the PSE and MSMEs.
This article has been authored by Shreekant Somany, Chairman, CII National MSME Council and Chairman & Managing Director, Somany Ceramics Ltd and was first published in CII Policy Watch, July 2022 Issue.