MII vs MSE - Benefits on Public Procurement

The ‘Make in India’ campaign encourages domestic manufacturing. Through the PPP-MII (Public Procurement Preference to Make in India) Order, 2017, revised on 16.09.2020 (DPIIT), government departments are required to buy from local sources. A product should have a certain minimum percentage of its content locally sourced to be eligible. The percentage of local content that a product needs to meet varies from one ministry to another. For instance, the percentage for electronics, garments, and machinery may be different. MII license is not an independent one. It is through self-declaration that this is done. Vendors provide evidence of local components with their tender documents. The authorities might check this even at the production stage or through samples.

The results of false statements are quite severe. Besides penalties like disqualification and blacklisting. There could be judicial proceedings as well.

The PPP-MII Order 2017 (revised 2020) divides all bidders into three categories. This is the main concept of the whole scheme.

It is very important to understand this classification before a business submits any government tender. One of the requirements is that a business that is classified as Class-2 is not entitled to the same preference as that of a Class-1 supplier, even when both happen to be local.

There is a PPP-MII order that offers an official formula for calculating local content:

Local Content (%) = (Total Value - Imported Content Value - Custom Duties) / Total Value x 100

This is the formula suppliers have to adhere to when drafting their self-declaration. Documentation like invoices, import records, and bills of materials, validating the calculated percentage should be included. Any discrepancies found during the audit might result in the disqualification of the applicant.

Only suppliers who meet the criteria can claim the MII status. Eligibility is determined by a few factors:

• The product must comply with the local content percentage stipulated by the ministry.
• Suppliers should be able to produce records indicating the origin of the materials.
• Simple packaging is not enough. Local value addition should happen through production.
• Special rules for sectors like defence, telecom, and electronics are to be followed.

Companies that are considering increasing local sourcing should familiarise themselves with these rules well in advance. Waiting until the last moment to figure out things may cause problems in meeting tender deadlines.

Issuance of MII status brings very tangible benefits. These are the things that companies get:

Such benefits are mostly aimed at manufacturers. Companies that are sourcing locally will obviously get the maximum benefits. Switching production to India can be the best use of MII for these businesses.

The registration of MSE comes under the Udyam Registration scheme. The Ministry of MSME operates this scheme. Enterprises are categorised using two things: investment in plant and machinery and sales turnover.

After registration, MSEs will be eligible to avail themselves of various benefits as per the PPP-MSE (Public Procurement Policy for Micro and Small Enterprises) Order, 2012 (Ministry of MSME). That policy lays down an explicit mandate. 25% of procurement of government departments and PSUs must come from MSEs.

This is not a mere suggestion; it is a mandated condition. Ministries that fail to meet this target are required to explain the reasons in the annual reports.

It matters to know what category a business falls under before applying. The factors that determine the classification are.

• Turnover from the previous year
• Amount invested in plant and machinery or equipment
• Nature of business - manufacturing or services
• Self-declared figures, cross-verified through PAN and GST data

Getting the correct classification can save a lot of trouble for disputes over benefits.

By becoming an MSE, you automatically become entitled to a lot of benefits. The following are some of the main benefits:

These benefits help small businesses to compete. If not for them, many MSMEs could not compete on price. The quota system ensures a fair share of spending.

The table below shows a comparison of the schemes. This makes the differences easy to identify.

The right-to-match-L1 rule is essential. If an MSE’s price is within 15% of the L1 bidder’s price, the MSE can match that price. After matching, it can get a maximum of 25% of the total order quantity. This is more than a mere price preference, it is a right to have an influential participation.

The 358 reserved items go a step further to ensure that MSEs have no competition with larger firms in those categories. This covers a large variety of products, from hand tools to certain food products and packaging materials.

Government e-Marketplace (GeM) is the official platform for government procurement. Various preferences (PPP-MII and PPP-MSE) are directly incorporated into GeM, each in its particular method.

When it comes to MII on GeM:

• Sellers have to indicate the country of origin when listing their products
• At product upload, the percentage of local content needed to be declared
• Preference filters for Class-1 and Class-2 suppliers in tender searches are automatically implemented.
• GeM verifies local content declarations and may report any discrepancies to the audit.

When it comes to MSE on GeM:

• Registered MSEs must first link their Udyam registration number to their GeM seller account.
• Buyers may use a product filter to get only the MSE suppliers, hence giving direct visibility to registered sellers.
• MSE sellers get automatic EMD exemption and tender fee waiver on the platform.
• The 358 reserved products are available in a separate MSE-only category on GeM.

While getting the registration right is essential, it is equally important to get the product listed correctly on GeM. Wrong tagging or the absence of local content details may result in a product not showing in filtered searches, which further means missing tenders. Professional Utilities enables businesses in both preparing and maximising their GeM listings and the Udyam registration.

Avoid these common mistakes to ensure compliance and maximize your MII and MSE benefits in government procurement.

• Making an incorrect turnover figure while filing Udyam Registration
• Missing the local content formula calculation before declaring the MII status
• Declaring Class-1 status without verifying the 50% local content threshold.
• Not conducting local content calculation before declaring MII
• Not changing the information in Udyam after turnover change
• Thinking that MSE benefits will be applied automatically
• Uploading MII declaration without supporting documents
• Not tagging country-of-origin correctly on GeM listings
• Discarding sector notifications that alter content rules

Staying away from these helps to have a smooth application process. Besides, it safeguards the case from being disqualified. An unblemished compliance record is an aid in getting tenders in the future as well.

Each one of the schemes is meant for different objectives. Though when combined, they can create great opportunities. MSE fits smaller companies that want to be protected with a quota and be exempted from fees. MII fits the manufacturer's sourcing locally.

The ones that master both of the schemes are the ones that win more frequently. Correctly applying will ultimately increase the chances of winning contracts. Getting expert assistance is an effective method of saving time and minimising errors.

Looking forward to government procurement benefits?
Government tenders are replete with opportunities. First, get yourself properly registered. Professional Utilities is the easiest and fastest way to accomplish this. We are just a click away to assist you from Udyam registration to compliance and documentation.

Government procurement is a very big market. Tenders worth crores are getting awarded annually. For small businesses, these schemes can be a way in.

Smaller firms, without the benefits of MSE or MII, are not only struggling with the price issue. To help these smaller firms, such schemes are providing opportunities like contracts. These contracts may rapidly change one's revenue and market reputation.

In fact, after getting registered, many small businesses experience increased orders. Adding the quota system and doing fee exemptions, the tenders get fairly more accessible to the smaller businesses.

So, registration is quite a bit important. A minor mistake made today could bring no opportunities tomorrow. Besides, it is way more time-consuming to fix mistakes later on.

That rests on the entity's size and the supply chain. Udyam Registration is what Small and Micro Enterprises (SMEs) with little turnover should start with. Right after that, MSE benefits will be available almost immediately.

Big manufacturers are a completely different group. Those who work on bidding for electronics and defence tenders, and their main concern should be the MII thresholds. That usually means that there are supply chain audits involved. Preparing the documents properly is a lengthy process.

Of course, if a company is unsure about its position, it is always useful to seek advice from the experts.

Professional Utilities can be the one-stop solution for your MII and MSE benefit-related issues:

• Filing Udyam Registration is perfectly classified
• Assisting in MSME compliance and renewal
• Support in the preparation of documents for MII declarations
• Advice on tendering and the GeM Portal
• Consultation on the various procurement schemes

One gets dedicated experts who do the document work, avoid errors, and ensure quicker approvals.