Public Procurement: Assuring Access to Domestic Market and Exports for MSMEs

An affirmative Supreme Court judgement of February 2025 pronounced that the Public Procurement Policy for Micro and Small Enterprises (MSE) Order, 2012, has the force of law and is subject to judicial review. Further, the judgment clarifies that authorities under the Micro, Small and Medium Enterprises Development Act, 2006 have a statutorily recognized obligation to implement the Order. Undoubtedly, the judgement augurs well for 6.42 crore registered micro enterprises and 4.75 lakh registered small enterprises since the Order, which draws its legal power from section 11 of the Act, provides an assured domestic market to MSEs.  

Public Procurement 

Tapping into the potential of procurement as a strategic policy lever to advance socio-economic objectives, the Order of 2012, as amended in 2018, 2021 and 2022, mandates that Central Government Ministries and Central Public Sector Enterprises (CPSEs) will procure at least 25 per cent of their annual requirements from MSEs. By making it easier for MSEs to access opportunities provided by public procurement, principles like equitable treatment and social responsibility are supported. 

Underlining the importance of inclusiveness, the Order states that within 25 per cent, at least 4 per cent should be procured from enterprises owned by SC/ST entrepreneurs and at least 3 per cent from enterprises owned by women entrepreneurs. Over the years, the mandatory requirement of 25 per cent has been achieved consistently and often surpassed by a wide margin. More than 37 per cent of the total order value on the Government e-marketplace (GeM) from 2016-17 onwards has been procured from MSEs. 

The encouraging trends for procurement from SC/ST and women-owned enterprises, and the steadily rising number of such enterprises benefiting from public procurement assuage the veritable fact that the sub-targets have remained a challenge (Table).  

Table: Procurement from MSEs

Figures in parentheses indicate the number (in thousands) of MSE beneficiaries.
Source: Sambandh portal

Market Access

Besides the domestic market, MSEs and medium enterprises (MSMEs) together contribute as much as 45 per cent to merchandise exports from the country. Categorisation as micro, small or medium is done on the basis of the twin criteria of investment in plant and machinery and turnover. 

To encourage MSMEs which export, the value of exports is not included while calculating turnover. The ambit of the MSME sector was enhanced with effect from this financial year to cover all enterprises which have an investment and turnover of up to Rs 125 crore and Rs 500 crore, respectively. For enterprises, after access to finance and technology, access to markets, which provides the interface between the supplier and the consumer, is the last, yet decisive, segment in the entire chain of supply of goods and services. Marketing is essential not just for reaching out to customers, but also for retaining them. 

Potential buyers can search the enormous database of 6.47 crore suppliers on ‘Buy from MSMEs’ on the Sambandh portal, which is used for monitoring public procurement from MSEs. A full integration of the Udyam Registration Portal (URP) for MSMEs with GeM may enable a higher proportion of MSMEs to offer their goods and services on GeM. 

Compliance with the Order’s sub-targets is achievable by embracing a precise strategy, based on the procurement requirements and experience of CPSEs. CPSEs may like to emulate the best practices of other procuring CPSEs. Widening of the Order’s reserved list of 358 items to be procured exclusively from MSEs is already in the pipeline. This would certainly facilitate CPSEs in their endeavour to achieve targets. Further, the Order does not preclude overlap between the 4 per cent and 3 per cent requirements. More than 20 States have their own procurement policies, with some advocating preferential treatment for MSEs. Aligning those policies with the Order would bring uniformity in procurement and support local MSEs. 

A comprehensive, practicable approach, based on eclectic strategies, followed by stakeholders, can equip enterprises to access markets. Such a formulation may entail measures to ensure cognisance by enterprises of schemes they are eligible for and the significance of branding and certifications for Zero Effect Zero Defect, availability of incentives for transitioning to a digital system, effortless on-boarding and successful transactions on e-commerce and adopting digital marketing, including Trade Enablement and Marketing initiative, and digital media. 

This can be supplemented by enhanced capacity building of entrepreneurs, technical workshops to enable MSEs to use GeM and other e-commerce platforms, like MSME Mart and Open Network for Digital Commerce protocols, focused vendor development programmes, subsidised participation in trade fairs, effective showcasing in exhibitions and access to state-of-the-art packaging. 

Moreover, for accessing international markets, it is imperative that updated information about the trade potential of prospective export destinations and technical know-how to adhere to stringent standards are made available to exporting MSMEs. For this, a central digital database, integrated with URP, backed by export facilitation centres across the country, would be beneficial for interested enterprises. It is posited that the ongoing negotiations for Free Trade Agreements and revisions to existing trade treaties with key global markets will ensure easier access to respective markets for India’s MSMEs. 

Considering that 70 per cent of registered MSMEs are into services, and the fact that many larger enterprises are now within the scope of the MSME sector, the contribution of MSMEs to domestic markets and to merchandise and services exports may well be poised to increase.