Ease of Doing Business for MSMEs: The Modi government is not aware of large companies setting up wholly-owned micro and small enterprise (MSE) subsidiaries to acquire public procurement tenders in the country, according to MSME Minister Nitin Gadkari. The minister’s comment comes amid the growing significance of the online channel for public procurement among MSEs to sell more to government organisations and central public sector enterprises (CPSEs). Financial Express Online reported in February this year that the share of MSEs selling to the government via the Government eMarketplace (GeM) had more than doubled in the preceding 12 months.
“No, sir,” Gadkari had replied to a question in the Rajya Sabha on whether the government is aware that some large corporates are setting up wholly-owned MSEs subsidiaries to grab public procurement tender. From 71,941 MSE sellers having a 22 per cent share of the 3.29 lakh seller base on GeM in February last year, the count has increased to 5,45,145 MSE sellers with a 49.5 per cent share of 10,99,116 total sellers as of February 25, 2021, according to the data sourced from GeM.
“There are certainly around 5-5.5 lakh MSEs that are basically subsidiaries of some of the very well-known Indian corporates and have a stronghold in the public procurement process. These MSEs are managed by a dedicated team instead of the top management of the corporate. Businesses operate them without lending their names to them. These subsidiaries operate in multiple sectors,” Chandrakant Salunkhe, Founder and President, SME Chamber of India told Financial Express Online. The association represents over 90,000 MSMEs as members.
However, one cannot object to these MSEs since they are registered businesses operating in the market while standalone MSEs are not able to compete with them because of cost and other factors, added Salunkhe. “There should be some mechanism by the government to ensure that other MSEs are not impacted due to this even as it is already happening. At least the government can restrict them to a certain extent.”
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According to the data sourced from the public procurement monitoring portal MSME Sambandh, the government has already met the 25 per cent annual target of procuring from MSEs in the current financial year. Rs 31,730 crore of procurement from MSEs (30.60 per cent) was made as of March 24, 2021. However, the procurement from SC/ST entrepreneurs and women entrepreneurs stood at only 0.57 per cent and 0.56 per cent respectively vis-à-vis the annual target of 4 per cent and 3 per cent. The government had purchased goods worth Rs 586.81 crore from SC/ST entrepreneurs and Rs 579.75 worth of goods from women-owned MSEs so far in the current FY.
“The CPSEs sometimes encounter challenges in procurement from SC-ST & Women MSEs. However, due to collective efforts by the CPSEs/ Ministries concerned, the participation of SC/ST & Women MSEs in public procurement has shown an increasing trend since 2017-18,” said Gadkari in reply to a question seeking reasons for shortfall in achieving sub-targets for SC/ST and women-owned enterprises. The share of SC/ST entrepreneurs has grown from 0.48 per cent and women entrepreneurs’ from zero per cent in FY18.
