Large companies mandated to source 30% manufactured goods from MSMEs | SupportBiz


Large companies mandated to source 30% manufactured goods from MSMEs

In a bid to perk up the ailing medium and small scale enterprises (MSMEs) in the manufacturing sector, an inter-ministerial committee (IMC) headed by MSME secretary Madhav Lal, has asked the big entities to mandatorily source at least 30 per cent of the products from the manufacturing MSMEs.

Other members of the IMC include Secretary in the Ministry of Labour M Sarangi, Textiles Secretary Zohra Chatterji and Department of Industrial Policy and Promotion (DIPP) Secretary Saurabh Chandra. 

This move of the panel is in line with the one imposed on foreign multi-brand retailers setting shops in India. However, unlike in case of foreign multi-brand retailers, no fiscal incentive will be bestowed on large enterprises for compulsory sourcing from the MSMEs.

Several industry bodies have welcomed this step but have also cautioned about sector-specific sensitivities; it will be difficult for some sectors involving high strategic items to source from smaller enterprises.

The panel has also suggested formulating a comprehensive strategy to tackle non-tariff barriers while negotiating free trade agreements with other countries. Besides, according to the Public Procurement Act, all central government ministries/department and CPSUs should source a minimum 20 per cent of their annual requirement from the MSMEs.

The panel also wants MSME suppliers to import indigenous raw materials.

As per a government official, the committee is planning to simplify rules for entry of MSMEs who want to start up their business along with creating an efficient framework for exit of sick units. Currently, the entrepreneurs who run unviable units and want to exit are afraid to do so due to the existing insolvency laws.

The panel had also held discussions with various industry associations who had put forward issues pertaining to decline in exports, tough entry and exit policies and issues like high cost of credit, obsolete technology and lack of skilled workforce, said the official.

Apart from stressing on development of infrastructure, the committee is looking at better integration of MSMEs in the entire value-chain. 

The MSME sector accounts for 45 per cent of the manufacturing sector and the government is keen to strengthen it since it is a large employment provider. Manufacturing activity in India remains sluggish on weak investment climate and poor demand. The sector recorded 1 per cent growth in 2012-13 against 11.3 per cent in 2009-10.