Central PSUs' procurement share from micro and small enterprises falls for the first time in 3 years

New Delhi: The share of public procurement by central PSUs from micro and small enterprises (MSEs) fell in FY25, for the first time since the pandemic.

In FY25, central government-run firms procured about 35% of their total public procurement from micro and small businesses, the lowest since FY23's 37%.

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Public procurement plays a key role in the economy as both central and state governments, and their entities form a significant part of the orderbooks of businesses. In a bid to ensure transparency, the Centre has digitized the process of procurement for government departments and companies. Further, in a bid to support small businesses and entrepreneurs, there is a push for procurement from micro, small and medium enterprises.   

According to data from the MSME ministry's Sambandh portal, procurement by central public sector enterprises rose in FY25 to ₹2.6 trillion, from ₹1.7 trillion in the previous fiscal.

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But the share of public procurement from MSEs did not keep up with this massive growth. While the procurement from MSEs rose in total value to ₹91,343 crore in FY25 from ₹74,728 crore in FY24, its share in total public procurement fell.

According to the central government's public procurement policy, a quarter of the procurement must be from micro and small enterprises. The development assumes importance as public procurement is an integral part of the earnings of MSMEs.

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The dip in the share came after four years of growth since FY21, data from the portal showed. Due to a slowdown in the economy during the pandemic, the share of public procurement from MSEs fell to 28%. After this, the share saw a steady growth in the following fiscals—33% in FY22, 37% in FY23, and nearly 44% in FY24—before dropping to 35% in FY25.

To be sure, the number of central PSUs procuring from MSEs also declined in FY25. According to the Sambandh portal, 141 central PSUs procured from MSEs, lower than 158 such firms in the previous fiscal.

Industry experts attributed the lower share of public procurement from MSEs to the fall in number of PSUs procuring from smaller firms. "One reason for the 35% share in public procurement (from MSEs) may be the number of PSUs which procured from such firms," said Anil Bhardwaj, secretary general, Federation of Indian Micro, Small, and Medium Enterprises.

"Some large PSUs have a larger weight in procurement from MSEs, while other smaller PSUs will have a minuscule weight. A large PSU with a revenue of a few hundred crores of rupees could potentially stand for 10% of the total weightage, while a smaller PSU could account for only 0.1% ," he said.

Sameer Gogia, executive director, Deloitte India, said the dip in public procurement from MSEs is likely to be on account of a delay in procurement due to the general elections in 2024. During elections, the government is mandated to stop all public procurement.

"The dip also indicates that the government chose to procure from larger firms. Larger firms, which have achieved economies of scale, may often provide goods and services to the government at a more competitive price than micro and small enterprises," Gogia said.