Policy of Reservation

Removal of Quantitative Restrictions And Reservation Policy
Price And Purchase Preference Policy for Marketing MSME Products

Reservation for Manufacturing:

Reservation of items for exclusive manufacture in MSME sector statutorily provided for in the Industries (Development and Regulation) Act, 1951, has been one of the important policy measures for promoting this sector.

The Reservation Policy has two objectives:-
  • Ensure increased production of consumer goods in the small scale sector.
  • Expand employment opportunities through setting up of small scale industries.

Non-MSME units can undertake manufacture of reserved items only if they undertake 50% export obligations.

Export obligation:

If the units presently in the small scale sector manufacturing a reserved item wish to go beyond the MSME limit then they have to obtain a licence from the Secretariat for Industrial Approvals. The licence pegs their production capacity at current levels. Manufacturer is required to export 50% of the additional production beyond the pegged capacity.

605 items are presently reserved for exclusive manufacture in the MSME Sector.

Reserved items according to the Second All India Census of Registered MSME Units (1987-88) accounted for:-
  • 11.3% of the items produced in the MSME sector.
  • 28.3% of the production in MSME sector.
  • 36% of the working MSME units for which data was compiled in the Census.
  • 23.8% of the total number of working and closed units.
  • 68 reserved items were found to account for 80% of the production under reserved category. Out of these 5 items have been de-reserved, hence the list now contains 63 reserved items.

There is no regulation or restriction on marketing of the reserved items by large industries.

Removal Of Quantitative Restrictions And Reservation Policy

As a result of improved balance of payment situation, India was under obligation to remove quantitative restrictions by 1st April 2001. Quantitative restrictions have been removed by 1st April, 2001. Out of 812 items which were on the reserved list at the time QRs had been removed on 643 items by 1st April 2000. These items have already been put on OGL as under: -

Year

Items Reserved
For MSME

Items On OGL

Remaining Items Under
Reserved List

1998-99

821

478

343

1999-2000

812

576

236

2000-2001

812

643

169

2001-2002

799

799

NIL

WTO conditions provide for removal of quantitative restrictions and linking of tariff upto bounded rates. A new global scenario is emerging. MSMEs will have to be competitive. Government is aware of these challenges and has been trying to improve the competitiveness through various measures. These consist of -

  • To strengthen existing technological facilities, Government is formulating a scheme of assistance for Technology Upgradation

  • To improve access to latest information, automation of the Ministry of MSME Office of DC (MSME), Directorate of Industries and District Industries Centres have been taken up. SIDO knowledge portal takes this process further.

  • In order to facilitate adequate flow of credit, a scheme of Credit Guarantee has been launched.

  • Measures have also been taken to improve infrastructure facilities and promote marketing of products

Government's Price And Purchase Preference Policy for Marketing MSME Products

The marketing assistance to the small scale units through preferential purchase by the Central and State Purchase Organisations was emphasised in the comprehensive programme for the development of MSME sector drawn in early 50's in pursuance of Industrial Policy Resolution of 1984. The emphasis was reiterated in the Government Policy in 1991.

I. 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).

Group-VI

Items which are to be procured exclusively from the MSME units to the extent of 50% of the requirement (28 items)

However, with effect from July 28, 1989, the Purchase Policy of the Government was modified in a major way and the categorisation of the items was reduced to the following two major groups, viz.
(i)

Items of stores reserved for exclusive purchase from KVIC/Women's Development Corporations/Small Scale units and

(ii)

Others not so reserved.

The first group comprised of 409 items earlier reserved for exclusive purchase from the small scale sector. The list of 409 items reserved for purchase from the MSME sector was reviewed 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 (set up to consider the question of inclusion of additional items) which also includes 8 handicraft items reserved for purchase from the Handicraft Sector.

II. 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 provide 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 the Scheme, the following benefits are given to MSME units which get themselves registered with the NSIC:-

i)

Availability of Tender Sets free of cost;

ii)

Exemption from payment of Earnest Money Deposit;

iii)

Exemption from payment of Security Deposit;

iv)

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 SISIs 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. The 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.


Related Links:

List of Reserved Items
List of Items for Exclusive MSME Purchase
MSME In India