A 20% procurement from MSEs under the Public Procurement Policy for MSEs Order, 2012 became mandatory from April 2015, and the Modi government had announced relaxed norms of Public Procurement for Startups in January under the Startup India Action Plan.
The Ministry of Micro, Small & Medium Enterprises (MSME) then notified central departments and public sector undertakings on March 10.
“In order to promote startups, the government shall exempt startups (in the manufacturing sector) from the criteria of ‘prior experience/ turnover’ without any relaxation in quality standards or technical parameters,” the government said in its plan. According to Nakul Saxena, industry policy expert from iSPIRT, while the relaxation of certain conditions is a positive step, startups may still face a number of impediments, especially when it comes to the time taken for the government’s processes.
“The tendering process can take anywhere between a month and a year, and startups will only be attracted if the process is fast tracked,” said Saxena.
Another major impediment is the trial process, he explained. “When four-five companies are shortlisted, the government may ask them to participate in a trial period. And more often than not, there are no payments involved in these trial periods, which could again discourage startups.” He also said there was not enough awareness among startups to benefit from the policy.
Manoj Joshi, Joint Secretary for SMEs in the MSME Ministry, said while the ministry pushes central public sector undertakings (CPSUs) to comply with the 20% procurement policy, it has not focussed separately on promoting startups and leaves it to the CPSUs to decide on which enterprise to procure from.
“If startups are interested and if they are in a position to supply to the government, they can definitely participate. However, it is difficult for us to deal with the lakhs of contractors in the SME sector and we usually leave the decision to the CPSU. Each contract has its own complications in terms of quality and specifications,” explained Joshi.
Ankit Mehta, Co-Founder of idea-Forge Technology that supplies UAVs to the government, said startups were typically not encouraged by the investor community to work with the government citing reasons such as corruption and red tape. In his experience, Mehta says he has had swift as well as delayed tendering processes. Another limitation could be the size of the startup. Shailendra Singh, joint secretary at the Department of Industrial Policy and Promotion, said so far, only startups that fall under the SME category are eligible to supply to the government under the industry policy. “We want the policy to be applicable to startups that are medium enterprises as well, and we are following closely with the concerned ministries,” Singh said.
While there may be some hurdles, Mehta highlighted the experience of working with the state as a supplier. “I feel the government makes for an ideal customer. One major benefit is that returns are assured. The government can also scale up your products faster than a regular enterprise. And most importantly, in fields of high technologies, the government is usually an early adopter,” the entrepreneur said.
The MSME Ministry did not share the total procurement made from SMEs under the new policy so far. According to a press note, during 2014-15, approximately,.`13,000 crore of procurement was done by CPSUs from MSEs.
Source: The Economic Times