PSU Orders Shrink for Small Biz

The share of public sector undertakings (PSUs) in procurement from MSMEs has declined in recent quarters, raising concerns over the effectiveness of policy mandates meant to support small businesses. Despite a government directive requiring PSUs to source at least 25% of their annual purchases from MSMEs, many state-run entities have fallen short of this target. This trend is troubling, as public procurement serves as a key market for many small firms that often struggle to compete in the private sector.

Several factors are contributing to the fall in procurement from MSMEs. Larger vendors continue to dominate due to their ability to meet strict technical and quality standards. At the same time, compliance with Quality Control Orders (QCOs) and obtaining Bureau of Indian Standards (BIS) certification remain challenging for many smaller units. Moreover, procedural complexities, stringent eligibility norms, and delayed payments discourage MSMEs from bidding for PSU contracts.

In response, the government has launched a renewed push to revive MSME participation in public procurement. The Government e-Marketplace (GeM) is being increasingly promoted as a user-friendly, transparent platform for small businesses to access government tenders. Efforts are underway to simplify the registration process and reduce paperwork for MSMEs. Additionally, norms requiring prior turnover and experience are being relaxed in select cases to allow more small firms to participate.

To enhance transparency and accountability, the Ministry of MSME is closely monitoring PSU procurement data and publishing performance scorecards. These measures aim to create peer pressure among underperforming PSUs and encourage compliance with the 25% procurement mandate. Vendor development programs (VDPs) and outreach activities are also being scaled up to connect MSMEs with potential buyers in the public sector.

While these initiatives are steps in the right direction, challenges remain. Many MSMEs lack the financial and technical capacity to meet procurement criteria. Payment delays, despite the mandated 45-day limit, continue to hurt cash flows. There is also a need to expand the list of items reserved for procurement from MSMEs and ensure more PSUs follow procurement best practices.

As India pushes for self-reliance and manufacturing-led growth, empowering MSMEs through assured public procurement is essential. Timely payments, supportive tender norms, and greater PSU accountability will be key to reversing the current decline and ensuring that small businesses are not left behind in the country’s development journey.