Ease of Doing Business for MSMEs: The unorganised and fragmented structure of the current tendering and procurement system across central and state government departments leaves a lot of room for compromises and bias.
- By R Narayan
Ease of Doing Business for MSMEs: In November 2020, Commerce Minister Piyush Goyal tweeted about how the Government e-Marketplace (GeM) has played an important role in catalysing the growth of MSMEs, promoting women entrepreneurship, and enabling startups to reach out to government buyers. The minister had referred to the Government e-Marketplace, or GeM, as the central government’s version of Amazon or Flipkart, specifically designed to facilitate online procurement of common goods and services required by various government departments, organisations, and PSUs.
The platform now hosts over 21.7 lakh sellers, of which over 7 lakh are micro, small and medium enterprises (MSMEs). Goyal pointed to the 88 per cent rise in order volumes, up from 26.2 lakh as of 01 November 2019 to 49.4 lakh by 01 November 2020. The data, captured in the throes of the pandemic, is particularly symbolic. According to numbers shared by the Ministry of Commerce & Industry, the GeM portal has facilitated over 67 lakh orders worth Rs 1,11,113 crore since its inception.
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GeM and MSMEs
Launched in August 2017, the Government e-Marketplace aims to provide efficiency, transparency, and inclusiveness in public procurement. With tools such as eBidding, Reverse Auction, and Direct Procurement, the platform allows MSMEs to sell directly to the government. In June 2020, the portal announced the decision to onboard more products by tribal communities, craftsmen, handicraft artisans, weavers, self-help groups, and MSMEs to make the platform more inclusive.
In fact, during the pandemic, GeM was instrumental in promoting Covid related essentials. It created a separate section for Covid categories, implemented new processes to tide over logistical hurdles, and prioritised approvals of products in this segment. By February 2021, there were over 183,148 products and 36,650 sellers under Covid categories. Suppose the GeM could enable more orders, i.e., increase demand during one of India’s toughest economic situations, the platform can become a source of untapped potential to help MSMEs earn more during less turbulent times.
Traditional hurdles in public procurement
The unorganised and fragmented structure of the current tendering and procurement system across central and state government departments leaves a lot of room for compromises and bias. Additionally, government departments and PSUs must come out of their regular comfort zone of inviting tenders and going through cumbersome documentations. It has been reported that many government departments and PSUs have been either reluctant or bypassing GeM while procuring items.
A change in attitude and mindset cannot be effected overnight. The government can think about schemes that encourage and incentivise departments to embrace technology in procurements and payments. It has also been reported that according to a Personnel Ministry order, GeM utilisation will be reflected on the Annual Performance Appraisal Reports of IAS and IPS officers. While such measures can certainly improve accountability among bureaucrats, the government can think of more actions in line with benefits and a sense of inclusion at lower levels.
Ensuring transparency, faster payment
The industry representatives of the MSME sector have long complained about the late clearance of dues while dealing with government departments. The delay in payment is more than 60 days in some cases. As per reliable government sources, the issue is not the shortage of funds in most cases. The lack of technological integration while settling the payment cycle and adhering to some decades-old protocols that may have outlived their relevance adds to the waiting period before dues are finally cleared.
Non-clearance or late payment of dues hurt MSMEs as they go through a never-ending cycle of shortage of funds. Moreover, raw material costs can widely fluctuate between the payment cycles. As a result, MSMEs often find it hard to scale up their business. MSMEs also find it hard to access information regarding procurements and orders available with various government departments. This can deny new and promising businesses a level playing field against established contractors.
The government decided to levy interest on late payments to vendors on GeM with effect from 1 October 2020. Furthermore, buyers on GeM are required to make payments within 10 days after the generation of the Consignee Receipt and Acceptance Certificate (CRAC). If strictly implemented, this will go a long way in ensuring speedy collection of payments for MSMEs. MSMEs, in turn, would be encouraged to bid aggressively for bagging more government orders and fulfilling them.
The government has directed its departments not to give excuses such as urgency, technical exemptions, poor internet connection, or portal server down while procuring goods and services elsewhere. Furthermore, The GeM Availability Report and Past Transaction Summary (GeMARPTS) ID was made compulsory for government procurements made outside the GeM. Such measures send out a positive sign to MSMEs that the government is seriously working towards effectively addressing their problems. However, results can only be visible if they are implemented strictly and consistently across all government departments.
Any effort to streamline the existing procedure and bring transparency in the government system has met a certain degree of resistance in India. Back in the early 90s, the dematerialisation of shares and the introduction of the National Stock Exchange as an alternative to the Bombay Stock Exchange also met resistance. However, these steps played a crucial role in the development of the Indian economy in successive decades.
GeM and other digital initiatives are no different. Any new initiative is greeted with the psychological fear of the unknown. Change can sometimes come in the form of a perceived sense of chaos. It is heartening to see that the government has shown conviction and resolve in implementing GeM. The need of the hour is that the entire government machinery shreds off any possible reservations or complacencies regarding the acceptance of new initiatives. The idea is to go mainstream in government procurements through GeM rather than just fulfilling the bare minimum requirements to achieve the numbers.
Regardless of past reservations and snags in the GeM implementation, the policy continues to have far-reaching implications for the economy. It’s not just a platform for online procurement – it helps in standardisation and ease of doing business with the government. It also acts as an impetus for ‘Digital India’, ‘Make in India’, and other such initiatives. With continuous improvements and fine-tuning, GeM has evolved as a robust, vital, and powerful avenue for the massive MSME base in the country. Its introduction of Natural Language Processing, advanced analytics using artificial intelligence and machine learning, and faster processing of approvals and payments should enable MSMEs to earn more in the future.
(R Narayan is the President at FICCI-CMSME and Founder & CEO at Power2SME. Views expressed are the author’s own.)