According to the CII (Confederation of Indian Industry), by the introduction of preferential procurement policy, the problems and challenges faced by Indian MSME’s, such as lack of financial and structured markets, delayed payments from large customers, low resources availability and high cost of capital, obsolete technology and lack of skilled manpower etc. can be addressed. CII has said that by implementing the preferential procurement of goods and services produced by MSMEs can be a powerful tool in positively influencing the fortunes of Indian MSME sector, as government and public sector units (PSU’s) are the biggest buyers in the country.
The preferential procurement policy is already being adopted in countries like Brazil, China, Australia, European Union, US and the UK, which is found to have favoring the SMEs greatly.
Even in India, the MSME Development Act, 2006, says that the central and state governments can notify such preferential procurement policies, from time to time. The MSME ministry in the Union government is already drafting a public procurement policy which will enable 20% of government and PSE procurements to be made from MSMEs for a period of three years. Therefore, this policy will increase the consumption of the products of MSMEs by government department and PSU’s.
The CII further suggests that, there should be also a policy which will allow government and its agencies to buy products manufactured by women powered MSME’s, on a large scale, so as to uplift the women entrepreneurs.
Further, it has also suggested that by providing tax benefits to the companies that source their products and services from MSMEs will enhance supplier – customer relationships between large companies and MSMEs, which would in turn benefit the entire supply chain and also help in the development and modernization of MSMEs.