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Price and Purchase Policy

The importance of the cottage and small scale industries to the National Economy was recognised by the Government as early as in 1948 under the Industrial Policy Resolution. In pursuance of this Policy, a comprehensive programme for the development of the Sector was drawn in early 50's. The marketing assistance to the small scale units through preferential purchase by the Central and State Purchase Organisations was emphasised. The emphasis was reiterated in the Government Policy in 1991.

The small scale sector has grown significantly in the last 4-5 decades. The Sector has certain distinct advantages from the point of view of Indian economy viz. low intensity capital investment, high employment potential, low intensity of import in export production etc.

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Price and Purchase Policy
Purchase Preference Policy

The policy of reservation of items for exclusive purchase has been in vogue since late 60's as a measure of market support to the MSME sector. The Stores Purchase Policy of the Government prior to 1989 was in the form of categorisation of items in six major groups as detailed below:-

Group-I: Items which are of no interest to small scale units and can be solely procured only from large scale units (128 items).
Group-II: Items which can be purchased solely from large scale units but where it is possible for the large scale units to job contract accessories and components to MSME units (159 items).
Group-III: Items which can be purchased both from small scale and large scale industrial units.
Group-IV: Items which are reserved for exclusive purchase from small scale units (409 items).
Group-V: Items which are to be purchased from MSME to the extent of 75% of the requirement (13 items) and
Group-VI: Items which are to be procured exclusively from the MSME units to the extent of 50% of the requirement (28 items).

With effect from July 28, 1989, the Purchase Policy of the Government was changed in a major way and the categorisation of the items was reduced to the following two major groups, viz.

  • Items of stores reserved for exclusive purchase from KVIC / Women's Development Corporations / Small Scale Units and
  • Others not so reserved. The first group comprised of 409 items earlier reserved for exclusive purchase from the small scale sector.

To consider the question of inclusion of additional items in the Group-IV (reserved exclusively for purchase from small scale sector), a Committee was constituted in 1968 with Secretary (Department of Supply) as its Chairman. The Committee was reconstituted on August 6, 1979 and again on October 10, 1979 and December 4, 1979. The Members of the Committee include representatives from various organisations viz. Ministry of Defence, Railways, DC (Handloom), KVIC, P&T, DC (Handicrafts) etc. and DC (MSME) as a Member Secretary.

The list of 409 items reserved for purchase from the MSME sector was reviewed recently and after deleting items having common nomenclature and making the entries more generic as well as addition of new items, a revised list of 358 Items was approved by the Committee which also includes 8 handicrafts items reserved for purchase from the Handicraft Sector.

Price Preference Policy

assistance under Government Stores Purchase Programme in the form of reservation of products for exclusive purchase from small scale sector and price preference is one of the major instruments for providing marketing support to the small scale industries. The Director General of Supplies and Disposals, the Central Purchasing Organisation of Government of India provides a number of facilities to small scale industries under its Government Stores Purchase Programmes.

These include reservation of certain products for exclusive purchase from the small scale sector and price preference upto 15% in case of selected items which are produced in both large scale as well as small scale units.

The Single Point Registration Scheme of NSIC was launched as a Market Support Measure for the MSME sector. Under this Scheme, the following benefits are given to the MSME units which get themselves registered with the NSIC:

  • Availability of Tender sets free of cost;
  • Exemption from payment of Earnest Money Deposit;
  • Exemption from payment of Security Deposit;
  • Price preference upto 15% over the lowest quotation of the large scale units (on merits).

The NSIC while registering a unit under this scheme is required to undertake capacity assessment of the applicant through the institutional set up of the MSME-DIs in the country. They are also required to obtain confidential report from the bankers of the manufacturers about the credit worthiness/financial standing of the same. The units registered with NSIC under this scheme are given a registration certificate indicating items for which registered and monetary limit upto which registered.

It is clarified that policy of the Price Preference of 15% is a critical benefit available to the MSME sector. The benefit is available to compensate them on account of non-availability of economies of scale, poor resource base, poor access to raw- material etc. as compared to the large scale sector. The policy of the Price Preference of 15% is an independent policy and is in no way linked with the price preference of 10% to the PSUs and other purchasers.