Policy changes to bring more startups under the ‘medium’ industry category

Policy changes to bring more startups under the 'medium' industry category
Image Courtesy: Make in India

Plans are underway to broaden the scope of Startup India, the pet initiative of Narendra Modi government. The government is contemplating to introduce policy changes aimed at including a larger number of startups under the ‘medium industry’ category to be eligible for public procurement incentive and preferential benefits.

This will enable more startups to avail benefits of government’s public procurement policy which requires Central government department, ministries and its central PSUs to procure at least 20% of their purchases from micro and small enterprises. These startups were losing out on this advantage on account of being slightly bigger than the old threshold which will be replaced through a policy change.

“The governing policy in the matter includes only small and micro enterprises and does not mention medium industry. We are trying to figure ways to make it part of the policy without breaking the legal framework,” a senior government official told an online daily.

According to Micro Small and Medium Enterprise (MSME) Act, a medium enterprise is defined by setting a range or an interval of investment permitted. For instance, for manufacturing enterprises, the interval is Rs 5 crore to Rs 10 crore in equipment investment. For the service sector, this range comes down to Rs 2 to Rs 5 crore.

Currently, discussions are underway between Department of Industrial Policy and Promotion and department of expenditure and MSME ministry officials for extending the benefits in the Startup India action plan to such startups, where a startup is defined as having a turnover of more than Rs 25 crore and not be older than five years from incorporation date.

Earlier this year, an initiative was taken by the MSME Ministry to relax the conditions related to prior experience and turnover for startups in all public procurements and an order was issued to all ministries and central public sector units to this effect. However, the order only mentions the small and micro enterprises covered by the Public Procurement Policy for MSE order 2012.

“The Startups are normally micro and small enterprises which may not have a track record. These will have technical capability to deliver the goods and services as per prescribed technical and quality specifications and may not be able to meet the qualification criterion relating to prior experience-prior turnover,” the order stated.

The idea behind this benefit was to provide a level playing field to startups in the manufacturing sector vis-a-vis the established companies and enable startups to participate in such tenders with relaxed eligibility conditions.

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