All startups allowed exemption from prior experience in tendering process

All startups- "micro, small or otherwise" have now been made eligible to get an exemption from the prior experience criteria in public procurement, a benefit that was enjoyed only by micro and small enterprises so far, according to a new directive issued by the department of expenditure.

The move is significant as it will 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.

This March, 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.

However, the order only mentioned small and micro enterprises covered by the Public Procurement Policy for MSE order 2012.

"The latest order has now put to rest earlier confusion over which startups are eligible for such benefits," a senior official said.

Also, the directive gives no definition for startups. A medium enterprise as defined in the MSME Act should have an investment of not less than Rs 5 crore and not exceeding Rs 10 crore in equipment if it operates in manufacturing space. In the services sector, the perimeter is from Rs 2 crore to Rs 5 crore. Under the start-up action plan, a startup is defined as one having a turnover of more than Rs 25 crore and can't be older than 5 years from incorporation date.

"Many initiatives are not being implemented at the ground level. We have been unable to access funds through the credit guarantee scheme for instance. There needs to be greater clarity of definition and implementation of these schemes," said Gaurav Kachru, founder of 5ideas Startup Superfuel, a seed fund that invests in start-ups.

Under the public procurement policy, the central government department and ministries and its central PSUs have to procure at least 20 percent of their purchases from micro and small enterprises beginning April 1, 2015. As per the MSME ministry's order, start-ups eligible should have the 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.