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Business News/ Budget / News/  ‘Introduce surety bond for public purchases’
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‘Introduce surety bond for public purchases’

The Federation of Indian Micro and Small and Medium Enterprises said accessing adequate bank facility continues to be a challenge

Finance minister Nirmala Sitharaman. (Photo: PTI)Premium
Finance minister Nirmala Sitharaman. (Photo: PTI)


With less than three months to go for the FY24 union budget, a section of small and medium businesses has urged finance minister Nirmala Sitharaman to make surety bonds accessible for making public procurements. In the budget for FY23, the FM had said surety bonds could be a substitute for bank guarantees in case of government procurements.

In a letter, the Federation of Indian Micro and Small and Medium Enterprises (FISME) said accessing adequate bank facility continues to be a challenge. “The FM in her last budget said bank guarantees will be replaced by surety bonds. It was supposed to be issued by insurance companies. But they never issued it. Bank guarantee sucks up working capital of MSMEs. SBI General insurance is the only one to say it is going to launch soon. No one else have replied to our queries," Anil Bhardwaj, Secretary General, FISME, said.

In response to Mint’s query, an MSME ministry spokesperson said: “In this case, ministry of MSME is not responsible. This Budget announcement is being implemented by Irdai."

Queries sent to the Insurance Regulatory and Development Authority (Irdai) and the finance ministry did not elicit any response till press time. FSIME said the introduction of surety bonds could increase the competitiveness among MSMEs and place Indian businesses at par with companies of most developed economies, as it will reduce indirect costs for suppliers and contractors, as margin money deposited for bank guarantees are very high at 10-30%.

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Published: 21 Nov 2022, 12:50 AM IST
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