The new industrial policy announced on 24th July, 1991 as part of the process of economic reforms has stated that the policy of reservation of products in the small scale industries sector will continue.

It is argued that the policy of reservation has led to rapid growth of the SSI Sector, since a significant number of units have come up in the reserved field. According to the Second All India Census, while only about 11% of items are reserved, the units producing reserved items accounted for 36% of the total number of registered units and as etch, employ a large number of persons. It is also argued that the policy has also action a price control mechanism for consumer items like a broad, biscuits, electrical and electronic goods, safety matches, looks, etc. and that it has led to the promotion of ancillaries as the large units have to obtain reserved components from the small scale units in sectors such as auto mobiles, mechanical and electrical engineering etc. It is also argued that has helped export promotion, since it is obligatory for the large scale units to export 75% of the produce in case they decide to manufacture reserved items.

1 Irrespective of any of the above procedure adopted for purchase minimum Three tenders/ Quotations will be required for effecting the purchase on competitive rates unless, otherwise, it is not possible to obtain three quotations for the reasons to be recorded and approved by the competent authority.

Governments, just like private companies, have to buy goods and services for their operational needs. Public procurement refers to the process by which governments and state-owned enterprises purchase goods and services from the private sector.

The Public Procurement Policy for Micro and Small Enterprises (MSME) order 2012 has mandated Every Central Ministry/Department/PSU shall set an annual goal for procurement from the MSE sector at the beginning of the year, with the objective of achieving an overall procurement goal of minimum 25 per cent of the total annual purchases from the products or services produced or rendered by MSEs. Out of 25% target of annual procurement 4% is exclusively reserved for MSEs owned by SC/ST and 3% for MSEs owned by Women entrepreneurs.

Under the policy, if the price quoted by the public sector enterprise is within 10% of the lowest price in a tender, other things being equal, purchase preference may be granted to the CPSE concerned at the lowest valid price bid.

There are about 2.7 million small scale units producing around Rs. 3,37,000 crores worth of goods and employing about 15 million people. Exports from SSI sector for 1995-96 has been estimated at about Rs. 34000 crores. At present, the small scale sector at present accounts for about 40% of industrial production and 35% of the exports of the country.

The term reservation for SSI was introduced in I(D&R) Act 1951 in 1984 through an amendment and thus the policy got a statutory backing. The 1984 amendment also provided for constitution of an Advisory Committee on Reservation, which meets periodically and considers reservation issues. The Committee was reconstituted in August, 1995 with Secretary (SSI & ARI) as Chairman and Secretary (ID), Secretary (IP & P), Chairman BICP, and AS&DC (SSI) as members. Review of items in the reserved list is a continuous process by the Advisory committee. While taking a decision for reservation, the Committee is required to go into aspects like, i) economy in production, ii) level of employment generation, iii) scope of diffusing entrepreneurship and iv) prevention of concentration of economic power.

The reservation policy was initiated in 1967 with 47 items which was enlarged to 504 items by 1978. In 1978, the reservation list was recast into NIC codes which converted these items to 807. Since then, from time to time some items have been added and also some items have been delated from the list. In addition based on the requirements, the nomenclature of certain items has also been changed. As on today, there are 836 items reserved for exclusive manufacture in the small scale sector. It may be mentioned that the small scale sector produces over 7500 items. As per the second All India Census of small scale industries held for 1987-88, reserved items accounted for 11.3% of the total number of items produced and 28.3% of the total production in the SSI sector.

Reservation of products for exclusive manufacture in the small scale sector as a policy instrument for its promotion owes its origin to the Industries (Development & Regulation) Act, 1951 (section 11B). As per this policy, creation of fresh capacity in the large/medium sector in reserved areas is permitted only if the unit agrees to an export obligation of a minimum of 75% of its production. The main rationale for reservation of items for exclusive production in the SSI sector were the feasibility of producing an item in the SSI Sector without compromising on quality; level of employment generation, diffusion of entrepreneurial talent and prevention of economic concentration etc.