The Department of Expenditure, in a directive issued to all ministries, has exempted all startups from prior experience criteria in public procurement. Earlier, this benefit was enjoyed only by micro and small enterprises.
The initial public procurement policy stated that the central government department and ministries and its central PSUs have to procure at least 20% of their purchases from micro and small enterprises.
With this move, both startups and established companies, especially in the manufacturing sector, will get on a level playing field. Also, it will enable startups to participate in those tenders with relaxed eligibility conditions.
The seeds to this initiative were sowed in March 2016 when the Micro Small and Medium Enterprises Ministry issued an order to all ministries and central public sector units to relax conditions related to prior experience and turnover for startups in all public procurements.
Unclear Policy, Worrying For Startups
Although all startups will now benefit from this policy, the directive still does not give any clear definition for startup eligibility.
A medium enterprise as defined in the MSME Act as “should have an investment of not less than $746K (INR 5 Cr) and not exceeding $1.5 Mn (INR 10 Cr) in equipment if it operates in manufacturing space.” In the services sector, this limit ranges from $298K (INR 2 Cr) to $746K (INR 5 Cr). Under the startup action plan, a startup is defined as one having a turnover of more than $3.73 Mn (INR 25 Cr) and can’t be older than 5 years from incorporation date.
Also, most of the startups are in new age businesses such as technology, healthcare, food, media & advertising, B2C consumer products, FinTech etc. In this scenario, an initiative favourable to just manufacturing startups will not be fruitful.
“Very few new-age startups actually have business relations with the government or PSUs. The government needs to reduce red tape in regulatory requirements such as opening a new business, labour laws, local VAT regulations, service tax, relaxing FDI policy, making business closure a less tedious process etc. and make the environment more business-friendly,” said Ajith Karimpana, CEO and founder, Furlenco.
While several other initiatives have been taken to boost startups this year, there is still difficulties and confusion in the implementation of some schemes. For instance, the government allotted $373 Mn (INR 2500 Cr) budget for startups along with tax benefits and various other exemptions. However, when only one application got selected out of 250, it raised a serious question about the government’s intentions regarding startups. This clearly shows that it’s important to first strengthen things at ground level before moving things in an upward direction.
Steps such as the current one on making startups eligible for government and PSU tendering is a step in the right direction but will impact very few new-age startups. It is hoped that the new GST bill to be passed today will also enable ease of doing business for startups in India.