Procurement Opportunities With Indian Public Sector Undertakings

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Introduction

Public procurement means procurement by government departments or public sector undertakings for own consumption and not for commercial resale. In words, the act of obtaining or buying goods and/or services is called procurement. When procurement is done by Government or Government undertakings/ statutory authorities it is termed as ‘Public Procurement’. Thus, public procurement is purchase of goods and services by the public sector entities and Government Departments in pursuance of achieving their objectives and fulfilling their mandate.

It is being an essential means for meeting functional needs and achieving socioeconomic objectives of the nation. Besides, and more importantly, in the process of such procurement, public money is being spent. Thus there is a need to ensure that the process is efficient and is capable of ensuring value for money. It is important to bear in mind that public procurement substantially differs from private procurement, as the Government and its agencies have often limited leverage due to the various administrative, procedural and accountability formalities that they have to follow as compared to private sector.

A private procurer can choose his purchasing strategy flexibly, whereas public procurement is subject to transparency requirements and a number of regulations. Procurement has to be in a cost-effective manner. Thus, efficiency and cost saving are necessary ingredients of the whole procurement process.

Public procurement as a share of Gross Domestic Product is substantial in countries across the world; more so in India, being a developing country. An effective public procurement practice aims to meet multiple regulatory, commercial and socioeconomic objectives, viz. achieving value for money through transparent and fair procurement process, promoting innovation, ensuring equality of opportunity for all businesses, particularly small and medium enterprises of India, ensuring quality, effective service delivery and diversifying supplier base.

While transparency in public procurement can increase society’s capacity to hold governments accountable, it also provides information and data for everyone who could be used by the prospective bidders to monitor each other’s price strategy closely, making it more prone to cartelisation and collusion. Hence, due care has to be taken in public procurement so that the transparency requirement may not encourage such collusion and cartel formation among the group of sellers selling the product or services to the public agencies. Introduction of competitive practices will not only prevent collusion but also help the Government to fight corruption by ensuring integrity.

International experience suggests that substantial savings can be achieved by infusing greater competition in public procurement and investment in social sector development of the country.

Benefits to MSE sector with central PSUs

  • Issuance of Tender Documents MSEs free of cost
  • Exemption from payment of EMD/Bid Security
  • SSI Unit is also considered as MSE.

Participating MSEs quoting price within Price brand of L1+15% allowed supplying a portion of requirement by matching to L1 price if the L1 price is from other than MSEs. MSEs shall be allowed to supply up to 25% (18% for General, 4% for SC/ST and 3% for Women-owned enterprises) of the total tendered value on satisfying the above conditions.

If tendered item is non-split table or non-dividable, MSE quoting price within price band L1 (other than MSE) +15%, shall be awarded full/complete value of supplies/contract subject to matching of L1 price.

Support system for MSEs

MSME SAMBANDH

All registered MSE vendors are required to get themselves registered in the following website: https://sambandh.msme.gov.in

MSME SAMADHAAN

Facility is available for all kinds of dispute resolution for all registered MSEs at the website: https://samadhaan.msme.gov.in

Conclusion

The MSME sector is of paramount significance for the economic growth and job creation in India. Low labour to capital ratio in the MSME sector compared to large industries and the wide and diverse geographic distribution of these enterprises make them crucial for inclusive and equitable growth across India. These enterprises are a source of healthy competition in the economy. Through the promotion of economic dynamism and innovation, they stimulate the entrepreneurial spirit and the diffusion of skills in rural as well as urban areas.

In spite of their importance for the economy, these enterprises are bogged down by considerable constraints that dwarf their growth potential. Lack of access to key resources such as finance, skilled manpower, infrastructure, market access, etc. pose significant challenges for MSMEs to attain global competitiveness. In such a scenario, robust supply relationships with Central and State Public Sector Undertakings (PSUs) as well as large enterprises present a significant opportunity for MSMEs by addressing their issue of adequate market access and linkages. These supplier relationships result in larger and more consistent orders for MSMEs and the stricter requirements of a larger firm of a PSU in terms of quality, on-time delivery, cost reduction and customer service provide incentives for the MSMEs to improve their operations. Working with smaller, local suppliers presents an excellent opportunity for larger companies too in reducing lead times, inventories and logistics costs. As far as the country is concerned, the replacement of imported inputs with locally produced inputs increases the national value-added, provides a push to the local communities and promotes indigenization.

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