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Ministry wants government contracts for small businesses

Ministry wants government contracts for small businesses

New Delhi: To give a fillip to small businesses, the ministry of micro, small and medium enterprises is taking a cue from a US legislation to promote goods produced by the sector in the government’s procurement process.

The ministry’s new purchase preference policy is modelled on the US’ Small Business Act, which seeks to get government procurement contracts for small businesses, officials said. A note on the new policy will be circulated among different ministries soon, they said.

“We will develop a consensus by speaking to several ministries, and will work out a policy on procurement," said Dinesh Rai, secretary in the ministry. “We will look at big government purchasers such as defence and the railways, and we will have to assure them quality and price."

Apart from lack of credit, new entrepreneurs often struggle to find a market for the goods they make. The ministry hopes India’s growing class of small businesses will gain a competitive edge by maximizing orders from government enterprises.

The policy will strengthen small and medium enterprises, which currently contribute 45% of the country’s manufacturing output and employ close to 42 million workers.

“Government procurement will lead to dispersal of activities rather than concentrate it in a few hands," said an official, who declined to be identified. At present, the government can notify preference policies on procurement of goods and services under the Micro, Small and Medium Enterprises Development Act, 2006, but ministries and public sector companies do not have a system of reporting on their purchase goals, which run into several thousand crores of rupees.

In the US, Small Business Administration, an independent agency, negotiates and reviews annual procurement preference goals with various government departments.

According to its website, goods and services procured by the US administration notched $16 billion (around Rs75,850 crore) between 1995 and 2004. Of this, small businesses accounted for 31%, or $4.9 billion.

But several small and medium enterprises already supply to big vendors. According to a 2008 survey by consultancy firm Frost and Sullivan, an estimated 5,000 small and medium enterprises supply goods to the $28 billion defence industry alone.

“There is a large opportunity for small and medium enterprises to participate in procurement, but the industry will grow only if there is a steady revenue stream and infusion of new technology for sustained growth," Ratan Shrivastava, director, aerospace and defence, at Frost and Sullivan, said.

Whether the policy will be accepted is yet to be seen, but khadi production centres, such as Sushila Gramodyog Sansthan, which supplied goods worth Rs6.5 crore to the Indian Railways and paramilitary forces last year, believes it will give a big boost to the industry.

“It’s not easy always to get a government contract," said Sathish Kumar, production manager at the Ghaziabad-based unit. “But if it happens, it will provide employment to a large number of people."

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