NEW DELHI: Small businesses are taking a larger share of the central government’s procurement, with purchases from the segment reaching ₹48,635 crore in the first half of fiscal year 2027 (FY27)—53% of total reported procurement—as the government’s spending gathers pace and external disruptions make domestic suppliers more important.
The figure is already more than double the 25% procurement target mandated for micro and small enterprises (MSEs), according to data on the government’s MSME Sambandh portal. The mandate applies specifically to MSEs, and does not include medium enterprises.
Industry representatives expect procurement to accelerate in the second half of the fiscal, although they cautioned that a record full-year number will depend on overall government spending and the opportunities available to smaller suppliers.
“There is reason to expect an increase in procurement during the second half, although surpassing last year's figures will depend on the pace of government spending and the procurement opportunities available to MSEs,” said Anil Bhardwaj, secretary general of the Federation of Indian SMEs, a national level lobby group for medium, small and micro enterprises (MSMEs) representing 740 regional groups.
Vinod Kumar, president of the India SME Forum, another lobby group representing around 100,000 small businesses, said government procurement typically rises in the second half of the financial year. “The first half figures are encouraging as MSEs are securing a larger share of reported purchases. A record full year value remains possible, provided overall procurement accelerates and this share is sustained,” he said.
In the first half (H1) last fiscal, MSEs accounted for 45.8% of government contracts, worth about ₹38,000 crore, Mint reported in October 2025, citing MSME Sambandh data.
The increase in MSE procurement comes even as overall central government procurement remains some distance from last year’s full-year level. Total public procurement, including purchases from non-MSEs, stood at ₹90,745 crore in H1FY27, or 38.12% of FY26’s total procurement of ₹2.38 trillion, according to the MSME Sambandh data.
An email query seeking comment from the MSME ministry on 1 October remained unanswered.
A bigger role for smaller suppliers
The share of central government procurement going to MSEs has risen steadily, from 23.11% in FY17, when total central government procurement was about ₹114,000 crore, to almost 49% in FY26, when total procurement reached ₹238,001 crore.
At the same time, the pool of formally registered small businesses has expanded sharply. In the first half of FY27, the number of MSMEs recognized under the government’s Udyam system rose from 65 million to nearly 97.4 million, according to data from the MSME ministry's performance smartboard.
Bhardwaj said it is “encouraging" that government procurement from MSEs is above the mandated 25% requirement. But he said the more important test is whether the gains are reaching a broader set of suppliers.
"The real test, however, is whether procurement is reaching a larger number of MSEs, including first-time suppliers and women and SC/ST entrepreneurs, and whether they are receiving payments on time. The government should therefore continue to focus on expanding the supplier base, ensuring that procurement preferences are implemented in individual tenders, making contracts accessible to smaller enterprises and strengthening payment discipline,” he said.
Kumar of India SME Forum attributed part of the increase to external pressures that are encouraging government buyers to source more from domestic businesses.
“In the context of geopolitical uncertainties and supply chain disruptions, government buyers are increasingly prioritising reliable domestic MSME suppliers,” he said, adding that the integration of MSMEs in the goods and services tax (GST) regime, increased formalisation, and digital payments has made MSMEs more visible, compliant, and procurement-ready.
Indian MSMEs have faced repeated disruptions in recent years, from the covid-19 pandemic and higher tariffs in key export markets to conflict-led disruptions to supply chains and trade routes.
More recently, the West Asia war, which has now flared up once again has led to shipping disruptions in the Strait of Hormuz and challenges in navigating other West Asian trade routes, increasing freight and insurance costs, along with taking global crude oil prices above $100 a barrel.
Kumar also said the gradual integration of systems such as digital invoicing and TReDS, or the trade receivables discounting system, is beginning to ease working-capital constraints and make MSMEs more competitive in government tenders.
TReDS allows MSMEs to auction and discount outstanding invoices or bills of exchange to receive early payments from multiple financiers.
In July, the central government mandated central public sector enterprises to use TReDS for MSE payments, fulfilling a Union Budget FY27 announcement.
Government demand isn’t enough
Public procurement matters to India’s small-business sector, which contributes 31.1% of the country’s GDP and 49% of exports.
But government demand alone cannot compensate for weakness in overseas markets, experts said.
“The government has been amping up procurement over the last few years, but that alone cannot play that role to salvage export markets. Large businesses will also have to increase their procurement from the domestic MSME suppliers, because the system is designed in a way where smaller businesses grow when their large buyers grow,” said Veeramani C., professor and director, Centre for Development Studies, a Thiruvananthapuram-based think tank.